Today’s report on last year’s fourth-quarter GDP wasn’t good. In fact, it was quite ugly. But it could have been a lot worse.
Even so, the 3.8% contraction in the economy in 2008’s final three months was the steepest decline since 1982. The previous recession in 2001 never came close to what’s unfolding now. The 1990-91 slump was deeper, but even that will look mild by the time the current downturn has run its course.
In other words, we’re now in the thick of the worst recession since the early 1980s. That said, the crowd was expecting a far deeper loss. The consensus forecast for Q4 GDP was -5.5%, according to Briefing.com. By that standard, the reported 3.8% retreat was a surprise.

Of course, today’s GDP report is the first of three estimates from the government and so we must brace ourselves for the possibility of downward revisions. But for the moment, it’s fair to say that the recession isn’t quite as bad as some had feared, at least if we’re using GDP as a benchmark.
That’s a thin reed, of course, since it’s likely that the pain will run on for some time. There’s also little reason to cheer the fact that imports are falling and inventories are rising, both of which helped limit GDP’s decline from being steeper than it otherwise would have been, at least on paper.
Meanwhile, no one should be complacent about the overall trend. Last year’s third quarter posted a mild -0.5% setback, but the wealth destruction became materially worse in Q4. The first three months of this year are likely to be no better and even money says it’s likely to get worse for a quarter or two.
Indeed, there’s no way to put a positive spin on the fact that consumer spending—the main engine of economic growth for the U.S.—continued to decline at a robust pace in Q4. Personal consumption expenditures fell a hefty 3.5% in last year’s final three months, almost as fast as Q3’s 3.8% decline. The pain is especially acute in durable goods spending, the so-called big ticket items such as appliances. The huge 22% fall in durable goods spending in Q4 is certainly humbling; it’s also a sign of just much has changed in the consumer mindset.
Yet there was a bit of good news. Spending in services by consumers actually rose in Q4, advancing by 1.7%. That compares favorably to Q3’s marginal loss. Given the heft of services in the economy, the growth is particularly important to offset weakness almost everywhere else.
Alas, the export machine that had offered so much hope last year as a buffer to economic pain elsewhere is now in full retreat. Exports fell 20% in Q4, the deepest drop in many a moon. Imports slid as well, although not quite as fast.
Overall, today’s GDP report is a reminder that we’re now in the midst of what promises to a deep recession, perhaps the worst since the Great Depression. The great question is how all the government stimulus will affect GDP this year. The monetary stimulus is only now starting to filter through the economy, and it will be soon followed by another round of fiscal stimulus. Stay tuned.