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Fourth-Quarter GDP Drops to Lowest Level in More Than 20 Years

The U.S. government has reported that gross domestic product (GDP)—the broadest measure of economic growth—contracted at an annual rate of 3.8% during the fourth quarter of 2008. While that was better than the 5.4% drop analysts had expected, the fall-off represents the worst decline in GDP since 1980.

The fourth-quarter GDP was helped somewhat by a build-up in inventories. Real final sales for domestic product, which excludes inventories, decreased 5.1% during the period. One of the concerns that many economists share is whether some of the effects of consumer spending and corporate investments have slipped into the current quarter. If so, that will have to be added to GDP contraction which is already almost certainly much worse than in Q4, experts say. Based on early statistics about consumer confidence, employment, real estate prices, and capital spending, a GDP contraction in the range of 10% should not be a surprise, watchers warn.

Some evidence of this can be found in the unemployment numbers. According to the Labor Department, 30 companies laid off nearly 200,000 people in January, boosting the current unemployment rate to 7.2%.

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