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GDP shrinks 3.8% in 4th quarter
[January 31, 2009]

GDP shrinks 3.8% in 4th quarter

(New Haven Register (New Haven, CT) Via Acquire Media NewsEdge) Jan. 31--The nation's gross domestic product shrank by 3.8 percent during the fourth quarter last year, which was not as steep a drop as expected, but a sign nonetheless that the recession continues to deepen.

Gross domestic product, or GDP, is the final value of all goods and services produced within the United States and is considered a measure of economic health.

According to a report released Friday by the Bureau of Economic Analysis, a division of the U.S. Department of Commerce, the largest contributing factors to the drop in GDP were a downturn in exports and a much larger decrease in equipment and software.

"The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software and residential fixed investment that were partly offset by positive contributions from private inventory investment and federal government spending," the report said.

Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said final GDP calculations are likely to be revised lower than the preliminary numbers announced Friday.

"It really does show some significant damage to the economy," he said.

Consumers cut back on spending during the quarter at a rate of 3.5 percent, despite the consecutive holidays of Halloween, Thanksgiving and Christmas.

Additionally, gross domestic purchases -- or purchases by U.S. residents of goods and services wherever produced -- decreased 3.7 percent in the fourth quarter.

There was a significant slide in consumer spending for durable goods such as cars and appliances, as shoppers cut back by 22.4 percent.

Donald Klepper-Smith, chief economist for DataCore Partners LLC in New Haven, said that while data provides a "rearview mirror perspective" it confirms a trend that is evident in retail sales: Americans are "saving more and spending less."

Congresswoman Rosa L. DeLauro, D-3, said the state of the economy underscores the need for a federal recovery package to pass and get signed by the president. Job creation will be critical to an economic turnaround, she said.

"The economy is in serious trouble," DeLauro said.

In a separate report, the U.S. Department of Labor announced Friday that the employment cost index, a measure of wages and benefits, inched up 0.5 percent in the fourth quarter last year, the weakest showing in more than a quarter century, and 2.6 percent for all of 2008.

"Compensation is going to be very muted this year," Gioia said, as the economy forces companies to offer leaner raises or implement freezes.

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