NEW YORK The U.S. economy contracted more sharply than initially estimated in the fourth quarter, government data showed on Friday, as exports plunged and consumers cut spending by the most in over 28 years amid a severe recession.
The Commerce Department said gross domestic product, which measures the total output of goods and services within U.S. borders, fell at an annual rate of 6.2 percent in the October-December quarter, the deepest slide since the first quarter of 1982.
The government last month estimated the drop in fourth-quarter GDP at 3.8 percent. The weaker GDP estimate reflected downward revisions to inventories and exports by the department.
NIGEL GAULT, CHIEF U.S. ECONOMIST, GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:
"Essentially about half of the revision is inventories, the rest of it mostly is consumption and exports.
"The numbers we saw on durable goods show there's another extremely sharp decline of business investment coming in the current quarter.
"The only good news is that we didn't actually accumulate inventories in the fourth quarter, there was some inventory reduction. But it wasn't anywhere near sufficient. The inventory sales ratio is still rising, even though we could see yesterday in the durable goods report that manufacturing inventories on the durables side fell in January. So there's still a big inventory correction that's going to come.
"On the spending side, the revisions to consumer spending and particularly the revisions to exports take us into the first quarter with less momentum on the spending side. So that's bad news for growth.
"And the evidence we've already seen in January on business investment tells us that business equipment spending is falling very sharply. So on the spending side things are getting bad... much worse than anticipated."
MATT ESTEVE, CURRENCY TRADER AT TEMPUS CONSULTING IN WASHINGTON,D.C.:
"These figures are just awful. A 6.2 percent drop in GDP is almost one full percentage point worse than the consensus. This shows the weak state of the world's largest economy. It will have to boost risk aversion and that will keep sustaining the dollar in particular against the euro."
BORIS SCHLOSSBERG, DIRECTOR OF CURRENCY RESEARCH, GFT FOREX, NEW YORK:
"We'd held out a slim ray of hope that it might surprise to the upside based on the better trade balance. But it's just doom all over. There's nothing good to take away from this report. The only thing is there's no good news on the other side of the Atlantic, either.
"That's why I don't see euro-dollar getting out of its 1.26-1.28 range right now. We need to see unemployment stabilize, but unfortunately, we're seeing more contraction. That's detrimental to growth. I think there's a few more bad quarters to come. All the major central banks will probably bring rates toward zero."
SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:
"GDP was meaningfully worse than what people expected. In my opinion, the first quarter looks to be weak as well. It means two things: it means more urgency for what the government is doing in Washington, and it means that the stock markets have mostly incorporated most of the weaknesses. I maintain that the trading range will be 750 to 900 (in the S&P500 stocks index). We're at the lower end, but you could see some pullback. I think we're bouncing along the bottom.
"The markets will maintain high levels of volatility through the middle of the year. The fourth quarter was much weaker than expected and the first quarter won't be much better. This will shift to near-term data. I think people will be watching the 750 level to see if it holds."
ADAM FAZIO, SENIOR CURRENCY STRATEGIST, CIBC WORLD MARKETS, NEW YORK:
"It's more negative news on the U.S. and the risk aversion trade remains in force, which means you've got to turn around and buy the dollar. It's already moving in this direction anyway because of the Citigroup news. This has also put an offer on crude oil prices because of weak economic activity. In terms of GDP, I think it's going to get worse still."
MARKET REACTION: STOCKS: U.S. S&P500 stock index futures fell. BONDS: U.S. Treasury bond futures rose. DOLLAR: The U.S. dollar slipped.