Home > global economic crisis > U.S. GDP Contracted 6.2% in Q4 Of 2008; Much Worse Than Originally Reported

U.S. GDP Contracted 6.2% in Q4 Of 2008; Much Worse Than Originally Reported

February 28th, 2009
The original estimate of GDP contraction in the American economy was bad enough; a preliminary forecast of 3.8% negative growth in the fourth quarter of 2008, according to the Commerce Department. Nearly every observer believed this figure was overly optimistic, and expected the updated 4th quarter number to hover above negative 5%. However, when the corrected results were finally released, they indicated that the United States economy in Q4 of 2008 actually contracted at a much worse than expected rate of negative 6.2%!

Not only did the statisticians of the U.S. government miss the true rate of economic descent in Q4 by a country mile; they were completely dislocated from the true rate of economic disintegration afflicting all strata of U.S. econometrics. Take for example exports, which supposedly showed some growth in the preliminary estimate, but are now shown in actuality to have been in decline. Ditto for inventory expansion. If anything, the corrected Q4 numbers tell us that the American economy is in free fall, and neither the public nor private sector analysts can give us a reliable appreciation of how severe the economic decline is in the United States in anything approaching a timely manner. In contrast, the Japanese government at least has been able to track its own economic implosion with much more accurate and timely numbers.

I point out the wide gap in the preliminary Q4 number and the corrected results because it is a reminder to be weary of the likely attempts by both government and Wall Street to downplay the American economic contraction while hyping the projected upside. The Obama administration has just unveiled a budget that projects a stratospheric deficit of $1.75 trillion dollars, a number equivalent to roughly 12% of the GDP. In their budget projections, Obama’s economic advisors are projecting a total GDP contraction in all of 2009 of just a little over one percent. Based on the revised Q4 contraction of negative 6.2%, how can the Obama administration believe the American economy will rebound in the middle of 2009 and sustain a modest decline in annual GDP? The answer is that President Obama’s economic team needs a GDP decline limited to just above 1% to keep the administration’s promise of cutting the gargantuan deficit in half by the end of its first term in office, at least on paper.

Political expediency may dictate how those in Washington deal with economic projections, however the Global Economic Crisis is not a respecter of political requirements. The U.S. is in a severe recession, and likely entering an economic depression. Any belief that the United States will halve its deficit while continuing with its accelerated public spending is pure fantasy.

As with the revised Q4 number on GDP, the unvarnished data that is yet to emerge throughout the course of 2009 will end up being far worse than is being currently forecast.

 

 

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