WASHINGTON The U.S. economy barely grew during 2008, at about a third the rate previously thought, the Commerce Department said on Friday, largely because plunging home values undermined consumer spending.
Benchmark revisions issued by the department showed gross domestic product expanded at a pedestrian 0.4 percent last year, instead of 1.1 percent as previously reported.
GDP measures the value of all goods and services produced within U.S. borders and is the broadest measure available of total economic activity.
Spending on residential construction tumbled 22.9 percent in 2008, instead of the previously reported 20.8 percent drop, the department said.
Falling home prices helped shrink household wealth, resulting in consumer spending falling 0.2 percent in 2008 rather than rising 0.2 percent as previously believed. Consumer spending accounts for over two-thirds of U.S. economic activity.
The sharp revisions to 2008 included a much steeper 2.7 percent annual rate of contraction in the third quarter instead of the 0.5 percent rate of decline reported earlier.
But fourth-quarter GDP was revised to show a 5.4 percent rate of decline, less severe than the previously reported 6.3 percent rate of decrease.
The economy slipped into recession in December 2007 and came close to posting four straight quarters of GDP declines last year. Boosted by the government's $168 billion stimulus program, second-quarter GDP grew at a revised 1.5 percent rate -- less than the 2.8 percent rate previously thought.
Overall, the annual benchmark revisions showed the economy on a steady, moderate growth path in the mid-2000s until recession struck in late 2007. GDP increased 3.1 percent in 2005 versus the 2.9 percent previously reported.
In 2006, the economy grew 2.7 percent instead of 2.8 percent. It expanded 2.1 percent in 2007, compared to prior estimates of 2 percent, the department said.
The data showed that a housing market plunge, which started in the first quarter of 2006, intensified in the final three months of 2007, with residential construction spending tumbling at an annual rate of 29.5 percent, worse than the 27 percent drop previously estimated.
Consumer spending fell at a 0.6 percent rate in the first quarter of 2008 instead of a 0.9 percent growth and barely recovered in the second quarter.
However, third and fourth quarter consumption estimates were revised to show the cut back in spending was not as deep as initially feared. Spending fell at a 3.5 percent rate in the July-September period instead of the 3.8 percent previously reported and declined 3.1 percent rather than 4.3 percent in the last quarter of the year.
The data also showed that Americans are stashing away money at a far higher rate than previously thought. The savings rate, the percentage of disposable income saved, rose to 2.4 percent in 2006 instead of 0.7 percent and was up 1.7 percent rather than 0.6 percent in 2007, the department said.
For 2008, the savings rate was at 2.7 percent, up from the 1.8 percent previously estimated, with the fourth quarter rate a high 3.8 percent instead of 3.2 percent.
Analysts are closely watching the savings rate for clues on when households will start spending again on a sustained basis and help the battered economy.
(Reporting by Lucia Mutikani; Editing by Neil Stempleman)