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Economy dips at slightly faster 6.3 percent pace

March 27, 2009|Neil Irwin | Irwin writes for the Washington Post.

WASHINGTON — The economy shrank even faster than thought at the end of last year, and job losses are continuing at a stunning pace, according to government data released Thursday, stark reminders of the severity of the downturn even as the economy shows hints of stabilizing.

There have been some mildly optimistic signs for the economy in recent weeks, particularly a surprising jump in orders for durable goods reported Wednesday. But Thursday's data were evidence that even if those signs of improvement continue, the outlook for U.S. workers is likely to remain bad for many months to come, and the recession is likely to be recorded as one of the most severe since the 1930s.

Gross domestic product, the broadest measure of the economy, fell at a 6.3% annual rate in the fourth quarter, the Commerce Department said Thursday, instead of the 6.2% decline earlier estimated.

There were, however, some glimmers of hope behind the headline number; the report said that business inventories fell even more than originally thought. That means that if demand for goods rises, factories will have to get cranking again.

"The shelves are bare, so as soon as demand returns, you could see some real improvement," said Nariman Behravesh, chief economist of IHS Global Insight. "Businesses are really at the limit of how low their inventories can go."

Economists believe that GDP has plummeted further in the first three months of 2009, but if Behravesh's analysis is accurate, it could rise again in the second half of the year.

There is less reason for optimism in the job market. An additional 652,000 U.S. workers filed for unemployment insurance benefits for the first time last week, the Labor Department said, up slightly from the previous week, and the number of people receiving those benefits continuously rose to an all-time high of 5.6 million.

"It's a long, long lag between the economy stabilizing and the labor market improving, unfortunately," said Kurt Karl, chief U.S. economist at Swiss Re. "We'll continue to see bad numbers from the labor market for some time."

He said he expected that the nation would continue shedding jobs through most of 2010, though at a much slower pace than in recent months.

Friday, the government will report on consumer spending and personal income for February; analysts expect a mild drop in income and a 0.2% increase in spending.

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