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The U.S. economy shrank at a 3.8 per cent pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending.
But its not all bad news – Exxon Mobil reported a profit of $45.2billion (£31.7billion) for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33 per cent from a year ago.
The previous record for annual profit for a U.S. company was $40.6billion (£28.4billion), which the world’s largest publicly traded oil company set in 2007.
The extraordinary full-year profit wasn’t a surprise given crude’s triple-digit price for much of 2008, peaking near an unheard of $150 a barrel in July.
Since then, however, prices have fallen roughly 70 percent amid a deepening global economic crisis.
In the fourth quarter alone crude tumbled 60 percent, prompting spending and job cuts in an industry that was reporting robust, often record, profits as recently as last summer.
Meanwhile the rate of America’s shrinking economy – while holding up better than economists expected – is likely to be revised even lower in the months ahead, with market-watchers believing the economy is contracting in the current quarter at a pace of around 5 percent.
The current January-March period, they said, will probably turn out to be the worse quarter for the recession.
‘The downturn is intensifying. The fourth quarter is worse than it looks,’ said Mark Zandi, chief economist at Moody’s Economy.com.
The new figure, released Friday by the Commerce Department, showed America’s economy sinking at a much faster clip in the October-December period than the 0.5 per cent decline logged in the prior quarter.
The report provided clear evidence of the economy’s rapid deterioration as the housing, credit and financial crises – the worst since the 1930s – feed on each other.
It’s a vicious cycle that has proven difficult for Washington policymakers to break.
The 3.8 per cent annualised drop marked the weakest quarterly showing since a 6.4 per cent annualised plunge in the first quarter of 1982, when the country was suffering through a severe recession.
For all of 2008, the economy grew by just 1.3 per cent. That was down from a 2 per cent gain in 2007 and marked the slowest growth since the last recession in 2001.
The report tallies gross domestic product, the value of all goods and services produced within the United States. It is considered the broadest barometer of the country’s economic health.
To jolt life back into the economy, President Barack Obama and Congress are racing to enact a multibillion-dollar package of increased government spending that includes big public works projects and tax cuts.
The House passed a $819billion (about £574billion) package on Wednesday and the bill is working its way through the Senate. Economists say the money needs to be quickly pumped into the economy to help stop the free-fall.
The White House was bracing for bad news. On the eve of the report’s release, press secretary Robert Gibbs thought the fourth-quarter results would be ‘fairly staggering’.
A build-up in business inventories – which in calculating GDP adds to economic activity – masked the fourth-quarter’s true weakness. When inventories are stripped out, the economy would have contracted at a 5.1 per cent pace in the fourth quarter, closer to the 5.4 per cent drop that economists expected. Businesses couldn’t cut production fast enough in response to waning customer demand and got stuck with excess inventories, economists explained.
The fourth quarter was by far the weakest three-month period in 2008, and the 3.8 per cent figure is likely to be revised even lower as the government makes new estimates based on more complete data.
The economy will stay very weak for much of this year, analysts predict.
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