Economy dipped 6.3 percent in 4th quarter-WEB ONLY

The economy shrank at a 6.3-percent pace at the end of 2008, the worst showing in a quarter-century, and it probably isn’t doing much better now.

The U.S. Commerce Department today reported that the gross domestic product shrank a bit faster than the 6.2-percent annualized drop estimated a month ago for the October-December quarter.

GDP is the value of all goods and services produced within the United States and is regarded as the best barometer of the country’s economic fitness.

Economic pain has persisted in the current quarter. New claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week’s revised figure of 644,000, the Labor Department said. The total number of people claiming benefits jumped to 5.56 million, higher than economists’ projections of 5.48 million, and a ninth straight record-high.

The figures indicate the labor market remains weak even as some other economic indicators come in better than expected.

Consumers are cutting back under the weight of rising unemployment, falling home values and shrinking investment portfolios. Those factors have forced companies to slash production and jobs. All the negative forces are feeding on each other in a vicious cycle that has deepened the recession, now in its second year.

Economists had bracing for an even sharper 6.5-percent annualized decline in the government’s third and final estimate of GDP for the fourth quarter. Still, the results were dismal.

The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter. The faster downhill slide in the final quarter came as the financial crisis intensified.

The main culprit behind the GDP downgrade was that businesses cut inventories more deeply than estimated a month ago. Builders also cut spending on commercial construction more deeply through previously thought.

Many analysts believe the economy will keep shrinking at least through the first six months of this year.

In the current January-March quarter, some economists believe the economy is contracting at a pace of between 5 percent and 6 percent. The government will release its initial estimate of first-quarter GDP in late April.