Falling off a cliff

FALLING OFF A CLIFF…. About a month ago, initial estimates showed that the U.S. economy shrank by 3.8% in the fourth quarter of 2008. One analyst, at the time, described it as an economic “train wreck.”

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If 3.8% was a train wreck, we’re going to need a whole new list of adjectives to describe the new numbers.

The fourth-quarter estimate was revised this morning, and as it turns out, the economy shrank by 6.2%. This graph, by way of the Washington Post, helps drive the point home nicely.

It was the worst economic showing in a quarter-century.

There was, alas, no silver lining. The Post reported, “Nearly every segment of the economy contracted sharply during the fourth quarter, the data show. Consumer spending fell 4.3 percent, compared with 3.8 percent in the third quarter. Investment in office buildings, shopping centers and other nonresidential structures sank 5.9 percent, compared with an increase of 9.7 percent in the previous quarter. Real exports of goods and services plummeted 23.6 percent, compared with an increase of 3 percent in the third quarter. As tax revenue plunged, state and local government spending also fell 1.4 percent, after rising 1.3 percent in the period from July through October. For all of 2008, the economy grew 1.1 percent, in contrast to an increase of 2 percent in 2007.”

Dean Baker added, “I’ve been pretty pessimistic all along, but [the numbers] came in worse than I expected and that’s pretty bad. You worry this is just a free fall.”

I have a hunch a spending freeze and a capital gains tax cut probably won’t help.