By Christian E. Weller
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WASHINGTON, DC—The U.S. economy in the fourth quarter of 2008 turned in its worst performance in a quarter century. The Bureau of Economic Analysis reported this morning that the economy shrank by an estimated annual rate of 3.8 percent in the fourth quarter of 2008, the largest drop since the first quarter of 1982. For all of 2008, total economic growth consequently registered a mere 1.3 percent, the lowest average annual growth rate since 2001.
The sharp downturn at the end of 2008 is unlike anything that we have seen in terms of negative economic performance since at least the early 1980s. And more bad news may be coming in 2009. All sectors of the economy—except for the government—contributed to the drop in economic activity in the fourth quarter. Personal consumption spending, investment by businesses and households, and exports all showed large drops. Even government spending registered a meager performance due to a small decline in spending by state and local governments suffering through a budget crunch.
As bad as the fourth quarter was, the economy in early 2009 could look even worse. Consumer spending could drop further as hundreds of thousands of workers are losing their jobs each month, business investment spending—especially on commercial buildings—continues to fall, exports could take another hit as many parts of the world are beginning to enter their own recessions, and state and local governments may curtail their consumption and investment spending as their budgets are decimated by the recession.
Against this bleak outlook, it should be clear that only federal government spending, especially when delivered quickly and efficiently, can provide the growth that is desperately needed to stop the economy and the labor market from its accelerated slide. Clearly passage of an economic stimulus and recovery legislation now working its way through Congress is of paramount importance.
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