March 26 (Bloomberg) -- The U.S. economy shrank at a 6.3 percent annual pace in the fourth quarter, the worst performance since 1982, in what may be the depths of the recession.
The contraction in gross domestic product was larger than the previously estimated 6.2 percent drop, the Commerce Department said today in Washington. A report from the Labor Department showed the number of people collecting jobless benefit this month climbed to a record 5.56 million.
“We’re at a turning point,” Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Radio. “There are some glimmers of hope. By the fourth quarter, maybe even the third quarter, we’ll be pleasantly surprised by the economic data.”
Recent reports show retail sales, residential construction and home sales have improved, indicating last quarter’s slump may give way to smaller declines in growth. A let-up in the recession would set the stage for President Barack Obama’s stimulus plan and Federal Reserve measures to take hold in the second half of the year.
Stocks climbed, extending the biggest monthly rally since 1987, on mounting speculation the economy may be past the worst of the downturn. The Standard & Poor’s 500 index rose 0.9 percent to 821.33 at 11:32 a.m. in New York. Treasuries were little changed with the yield on the benchmark 10-year note at 2.79 percent, the same as late yesterday.
The GDP report also showed corporate profits dropped 16.5 percent in the fourth quarter from the previous three months, the biggest decline since 1953. For all of last year, profits were down 10.1 percent, the biggest annual drop since 1970.
Job Cuts
The decline in earnings underscores why companies are slashing payrolls this year. Initial claims for jobless benefits last week rose 8,000 to 652,000, topping 600,000 for an eighth straight time, the report from Labor also showed. Total benefit rolls jumped by 122,000 in the week ended March 14, from 5.44 million the previous week, indicating more Americans are spending longer periods out of work.
The drop in GDP, the sum of all goods and services produced, was smaller than the 6.6 percent median estimate of 69 economists surveyed by Bloomberg News. Forecasts ranged from decreases of 7.1 percent to 6 percent.
“It’s a pretty dismal result,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “Given the slight improvement we’re seeing in some of the recent indicators, I suspect the first quarter will be a little better than the fourth.”
Annual Growth
For all of 2008, the economy grew 1.1 percent, the same as previously estimated, as exports and government tax rebates in the first six months helped offset the slump in consumer spending that followed.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 4.3 percent pace last quarter, marking the first back-to-back decreases in excess of 3 percent since record-keeping began in 1947.
Retailers are doing better so far this year. Sales fell less than forecast in February and January’s 1.8 percent gain was the biggest in three years, Commerce reported earlier this month.
The improvement is coming even before President Barack Obama’s $787 billion stimulus package, designed to create or save millions of jobs and jolt the economy out of recession through infrastructure spending and tax cuts, takes hold. A separate plan is aimed at stemming foreclosures and helping struggling homeowners manage their mortgage bills.
Bank Regulation
Treasury Secretary Timothy Geithner today proposed a broad overhaul for regulating the financial system in order to heal a crippling lack of confidence. He called for a systemic risk regulator to oversee big financial institutions and federal authority to seize them if they run into trouble.
Housing may also be on the mend. Builders broke ground on 22 percent more homes in February than in the previous month and sales of new and previously owned houses also increased, erasing some of the gloom surrounding the market.
A bigger reduction in inventories than previously estimated accounted for most of the GDP revision. Fewer goods on hand lay the foundation for growth in 2009 as manufacturers gear up to meet any improvement in demand.
“Inventories are getting low enough in some sectors that stocks might need to be replenished,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “It’s encouraging news that the economy may be starting to turn around a bit.”
Auto Slump
Carmakers are among the industries counting on stepped-up efforts by policy measures for survival.
General Motors Corp. Chief Executive Officer Rick Wagoner last week said a $5 billion rescue package for auto-parts suppliers and a proposal to provide consumer car-buying incentives may spark a revival of the U.S. auto market.
“It does feel like, absent some other financial catastrophe, we’re bumping along the bottom,” Wagoner said in an interview on March 19 from his Detroit office. “What I can’t tell you is, when we may begin to see, in this baseline case, a slow resumption.”
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