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US economy shrinks 6.2% but recovery may be in sight
Source: BI-ME , Author: BI-ME staff
Posted: Fri February 27, 2009 12:00 am
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INTERNATIONAL. The US economy contracted more sharply than initially estimated in the fourth quarter of 2008 on an annualized basis, government data showed on Friday, as exports plunged and consumers cut spending by the most in over 28 years amid a severe recession.

The Commerce Department said gross domestic product, which measures the total output of goods and services within US borders, fell at an annual rate of 6.2% in the October-December quarter, the deepest slide since the first quarter of 1982.

Today's announcement is a downward revision from the first government estimate, last month, of a 3.8% GDP contraction. The weaker GDP estimate reflected downward revisions to inventories and exports by the department.

But as geopolitical analyst firm Stratfor reported today, there are two very notable silver linings.

The US economy is still larger than it was in January 2008. Many countries around the world — industrial powerhouses Germany, the United Kingdom and Japan come immediately to mind — cannot say that.

Second and far more importantly, the February statistical release revealed that the inventory growth increased the fourth quarter’s GDP figures by 0.16 of a percentage point. The January release, in contrast, indicated an inventory increase of nearly ten times that amount. US statistics typically view inventory builds as positive GDP activity because something of value was added.

"However, inventory builds do not reflect actual growth — particularly during recessions — as they represent the accumulation of goods that no one wanted to purchase. Until inventories are trimmed back, there is little reason for firms to produce more goods, and the time it takes for consumers to use up excess inventories delays the onset of economic recovery. Therefore, the fact that inventories did not increase by nearly as much indicates that the United States is actually somewhat closer to a recovery than the January statistical release indicated," Stratfor concluded.

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