Now it's official: the economy really is in free fall. When the bean counters at the Commerce Department's Bureau of Economic Analysis (BEA) came out a month ago with their first estimate of how fast the economy shrank in the fourth quarter, economists and investors were surprised that it was at a mere 3.8% annual rate. Now, after some of the updates and revisions that are a standard part of the process of estimating gross domestic product (GDP), the number is a far more dramatic 6.2%.
"Finally, the GDP number reflects the pitiful condition of the U.S. economy at the end of last year and the historical dimension of the current recession," wrote Harm Bandholz, U.S. economist at Unicredit Research, in a note to clients. (See TIME's "25 People to Blame for the Financial Collapse.")
How historical? The -6.2% figure represents the worst quarter for economic growth in the U.S. since 1982, when the economy shrank at a 6.4% annual rate. And the BEA which said new data on exports, consumer spending and inventories were the main causes of the dramatic change in its estimate isn't done revising: there will be one last estimate of fourth-quarter GDP on March 26, then what are called benchmark revisions a couple of years down the road. The revision trend is clearly downward, and the 1982 mark is likely to be overtaken.
After that, the two worst quarters for GDP growth since the BEA began keeping track of quarterly numbers in 1947 have been -7.8%, in the second quarter of 1980, and -10.4%, in the first quarter of 1958. But those were both temporary setbacks engineered by the Federal Reserve to crack down on inflation, and growth resumed soon afterward. All indications so far this year are that the downturn has continued and possibly worsened.
The sources of economic weakness in the fourth quarter were across the board. Consumer spending dropped at a 4.3% pace, its worst performance since 1980. Nonresidential private fixed investment a.k.a. capital spending fell at a 21.1% rate, the worst since 1975. Exports fell at a 23.6% annual pace, the worst since 1971. And residential investment was down at a 22.2% pace, but that's the worst only since the first quarter of 2008.
The one major indicator headed upward was government spending, but only at a 1.6% annual pace. That should rise significantly starting in the second quarter of this year as spending from the recently enacted stimulus package begins to be felt. The effectiveness or lack thereof of the stimulus measures will probably determine where this recession goes down in the history books.
Unless it ends suddenly tomorrow, all signs are that this will stack up as the worst economic downturn in the U.S. since the Great Depression. But if government spending is able to begin stabilizing the economy sometime in the second half of this year, the scale of the decline in indicators ranging from GDP to employment to consumer spending will be much closer to that of the harsh recessions of 1981-82 and 1974-75 than the nearly complete economic collapse of the 1930s. Will the stimulus work? That's the $770 billion question the new GDP numbers really don't answer.