Significant GDP Drop in Line with Trade Group’s Prediction
- Jan 30, 2009
By Anuradha Kher, Online News EditorNew York–The U.S. economy shrank at its fastest pace in a quarter-century from October through December, the government reported today. Consumer spending and business investment also collapsed during this period, signaling more economic contraction in the months ahead.U.S. GDP, the broadest measure of a country’s national income, fell by 3.8 percent in the final three months of the year, which is the worst figure reported since the first three months of 1982 when the economy shrank by 6.4 percent.The figure is in line with what the Mortgage Bankers Association (MBA) had predicted would be contractions of 3.7, 2.0, 0.7 percent in the fourth quarter 2008 and first and second quarters 2009 respectively.The MBA has predicted that GDP should turn positive, by 2 percent, in the third quarter of this year. Jamie Woodwell, MBA vice president of commercial real estate research, explains that in the second half of last year, the sharp pullback on the part of consumers contributed to the big drops in GDP. “This year, business inventory contractions would play a larger role in the decrease in GDP. By later this year, the economy would have pulled back to the level from which they can start moving again,” Woodwell told MHN. Bernard Markstein, chief economist at the National Association of Home Builders (NAHB) also told MHN, “Essentially, we think we will still be in a recession in the first part of the year, but there will be a recovery in the second half of 2009.” NAHB forecasts an upturn in GDP growth of 1 percent in the third quarter of ‘09. Several other economists had predicted a 5.5 percent drop, which would have been much steeper if shipments of goods had fallen as sharply as orders.