WASHINGTON (Reuters) - The U.S. economy shrank during the closing months of 2007 for the first time in six years, the Commerce Department confirmed on Thursday, hurt by the steepest slump in housing since 1981.
But it bounced back to record modest growth in 2008, avoiding back-to-back quarters of decline that would have met a popular definition of recession.
The department sharply revised its estimate for fourth-quarter performance to show gross domestic product, or GDP, contracted 0.2 percent — rather than growing 0.6 percent as it previously reported.
It was the first three-month period in which GDP shrank since during the last official recession when growth contracted by 1.4 percent in the third quarter of 2001.
Growth resumed in the first quarter of 2008, however, with GDP rising at a 0.9 percent rate that accelerated to 1.9 percent in the second quarter as government stimulus payments began to flow.
Early this year, the Democratic-led Congress and the Bush administration agreed on a $168-billion, two-year program to issue stimulus checks up to $300 for qualifying individuals and $600 for couples to try to reinvigorate the economy. Upward of $91 billion of payments have now been issued, the Treasury Department says.
GDP measures the value of all goods and services produced within U.S. borders and is thus the broadest measure available of total economic activity.
The department issued benchmark revisions covering a three-year period, 2005-2007, that showed the economy on a consistently deeper and declining trajectory than previously was recognized.
GDP grew 2.9 percent in 2005 instead of 3.1 percent, 2.8 percent rather than 2.9 percent in 2006 and 2 percent in 2007 instead of 2.2 percent as previously reported, Commerce said.
The economy was clearly suffering as 2007 ended because of a deepening drag from the worst slump in the U.S. housing industry since the Great Depression.
Spending on residential construction plunged 27 percent in the fourth quarter, the most precipitous drop since a 35.1 percent fall in the fourth quarter of 1981 when the economy also was in recession.
With housing prices tumbling and costs for gasoline and other energy products climbing steeply, consumers who provide the main thrust for economic growth sharply slowed the rate at which they increased spending as 2007 ended.
Personal consumption expenditures that fuel about two-thirds of national economic activity increased at a 1 percent rate in the fourth quarter and moderated further to 0.9 percent in the first quarter of 2008. Spending perked up to a 1.5 percent annual rate in the second quarter.
Reporting by Glenn Somerville; Editing by Andrea Ricci