US downturn proves worse than expected

The US economy suffered its deepest contraction in over 26 years in the fourth quarter, with DDP shrinking at a rate 6.2 per cent annual rate, which is much worse than anticipated.

A month ago, the commerce department had estimated that the economy would shrink at a 3.8 per cent rate in the fourth quarter.  On Friday, the department revised its fourth-quarter gross domestic product reading downward.

Most of the revision came from inventories. It also reported that personal consumption fell by 4.3 per cent, which was also below the 3.7 per cent drop anticipated by Wall Street.

Exports, until recently one of the few pillars supporting the distressed economy, tumbled at a 23.6 per cent annual rate, the steepest plunge since 1971. That was revised downward from the 19.7 per cent drop estimated in last month's report.

Further highlighting the severity of the recession, business investment fell at a 21.1 per cent rate, the largest drop since 1975, from a previously estimated 19.1 per cent. That took away nearly 2.5 percentage points from overall GDP.

The dour data and a move by the government that could boost its equity stake in Citigroup to as much as 36 per cent hammered US stocks to 12-year lows.

A separate report - the final Reuters/University of Michigan consumer sentiment index - showed that mounting job losses had made consumers gloomier in February, evidence that the US recession continues to deepen. The index for February fell to 56.3 from January's 61.2.