Economy looks even bleaker as GDP revised down to 6.2% fall

 

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The Reuters/University of Michigan Surveys of Consumers said its final index reading of confidence for February fell to 56.3 from 61.2 in January. That was marginally higher than the preliminary result of 56.2 announced earlier this month but was the lowest final reading since 55.3 in November 2008.

It's creating a self-perpetuating vicious cycle that Washington policymakers are finding hard to break.

To jolt life back into the economy, President Barack Obama recently signed a $787 billion recovery package of increased government spending and tax cuts. The president also unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

For all of 2008, the economy grew by just 1.1%, weaker than the government initially estimated. That was down from a 2% gain in 2007 and marked the slowest growth since the last recession in 2001.

With Friday's figures, Mayland lowered his forecast for this year to show a deeper contraction of just over 2%.

In the fourth quarter, consumers cut spending at a 4.3% pace. That was deeper than the initial 3.5% annualized drop and marked the biggest decline since the second quarter of 1980.

Businesses slashed spending on equipment and software at an annualized pace of 28.8% in the final quarter of last year. That also was deeper than first reported and was the worst showing since the first quarter of 1958.

Fallout from the housing collapse spread to other areas. Builders cut spending on commercial construction projects by 21.1%, the most since the first quarter of 1975. Home builders slashed spending at a 22.2% pace, the most since the start of 2008.

A sharper drop in U.S. exports also factored into the weaker fourth-quarter performance. Economic troubles overseas are sapping demand for domestic goods and services.

Businesses also cut investments in inventories — as they scrambled to reduce stocks in the face of dwindling customer demand — another factor contributing to the weaker fourth-quarter reading. The government last month thought businesses had boosted inventories, which added to gross domestic product, or GDP.

Fed Chairman Ben Bernanke earlier this week told Congress that the economy is suffering a "severe contraction" and is likely to keep shrinking in the first six months of this year. But he planted a seed of hope that the recession might end his year if the government managed to prop up the shaky banking system.

Even in the best-case scenario that the recession ends this year and an economic recovery happens next year, unemployment is likely to keep rising.

That's partly because many analysts don't think the early stages of any recovery will be vigorous, and because companies won't be inclined to ramp up hiring until they feel confident that any economic rebound will have staying power.

AP Business Writer Harry Weber in Atlanta contributed to this report, Reuters.