Slump deepened as credit froze: report

Bloomberg

Gross domestic product contracted at a 5.5 percent annual rate from October through December, the biggest drop since 1982, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due Jan. 30.

President Barack Obama and Congress are working to pass an economic stimulus plan worth $825 billion by mid-February to stem what may be the worst recession in the postwar era. Federal Reserve policy makers, under Chairman Ben S. Bernanke, also meet this week amid growing expectations they’ll unveil more tools to unclog lending after having cut interest rates to as low as zero.

The recession "entered a more negative and pernicious phase in the fourth quarter," said Brian Bethune, director of financial economics at IHS Global Insight in Lexington, Massachusetts. It’s "potentially the worst recession that we’ve seen in terms of the severity and the depth."

The projected contraction last quarter would follow a drop of 0.5 percent at an annual pace in the prior three months.

The economic downturn helped Obama win the election in November as his message of change resonated with voters. The legislation being hammered out with Congress includes tax cuts and new federal spending for infrastructure projects that the administration hopes will create or save 4 million jobs.

Consumer Slump
After starting in housing, the recession has spread to households. Consumer spending, the largest part of the economy, is forecast to have dropped at a 3.5 percent pace last quarter after slumping at a 3.8 percent rate the previous three months.

Wal-Mart Stores Inc. Chief Executive Officer H. Lee Scott said Jan. 12 that the first half of 2009 will be extraordinarily challenging: "Some people are giving up eating out; some people are giving up movies; some people are giving up other things like shopping," Scott said. "Those are fundamental changes that will continue."