WASHINGTON — The “Great Recession” was even greater than previously thought, and the U.S. economy has skated uncomfortably close to a new one this year.
New data on Friday showed the 2007-2009 U.S. recession was much more severe than prior measures had found, with economic output declining a cumulative of 5.1% instead of 4.1%.
The report also showed the current slowdown began earlier and has been deeper than previously thought, with growth in the first quarter advancing at only a 0.4% annual pace.
The data indicated the economy began slowing in the fourth quarter of last year before high gasoline prices and supply chain disruptions from Japan’s earthquake had hit, suggesting the weakness is more fundamental and less temporary than economists had believed.
The annual revisions of U.S. GDP data from the Commerce Department showed economic growth contracted at an annual average rate of 0.3% between 2007 and 2010. Output over that stretch had previously been estimated to have been flat.
At the depth of the recession in the fourth quarter of 2008, output plummeted at an annual rate of 8.9% — the steepest quarterly decline since 1958, and 2.1 percentage points more than previously reported.
The recession was already the deepest since the Great Depression and, while it still pales in comparison, the data help explain why it is taking so long to shake off its legacy.
“The general picture of the recession remains pretty much the same, it was a record decline before and now it is a even bigger decline,” Steven Landefeld, the director of the department’s Bureau of Economic Analysis, told reporters.
The economy was weaker in both 2008 and 2009 than had been thought. Gross domestic product contracted 0.3% in 2008; the department had previously reported it was flat. In 2009, it shrank 3.5% instead of 2.6%.
In the first quarter of 2009, the economy shrank at a 6.7% pace, 1.8 percentage points more than had been thought.
When growth finally resumed in the second half of 2009 after four straight quarters of contraction, it was less vigorous than thought. Growth in the fourth quarter of 2009 was cut to a 3.8% pace from a previously reported 5.0% rate.
The revisions also showed weaker income growth. Disposable income adjusted for inflation grew at an average annual rate of 0.6% between 2007 and 2010, rather than 1.2%.
At the same time, households saved less in 2009 and 2010. Perhaps surprisingly, corporate taxes were stronger than had been thought in 2009 and 2010.
TROUBLING 2010-2011 SLOWDOWN
The data was released Friday along with the government’s first estimate of second quarter GDP, which advanced at a meager and weaker-than-expected 1.3% rate.
Not only did the economy skirt perilously close to a contraction in the first quarter, growth in the fourth quarter of last year was at a tepid 2.3% annual rate, not the solid 3.1% pace that had been believed.
The downward revision to the first quarter was even sharper. Previous figures had shown the economy advanced at a 1.9% rate.
A combination of bad weather, high gasoline prices and disruptions to manufacturing after the March earthquake in Japan had been blamed for this year’s slowdown.
But the surprisingly weak tone in the data so far this year and the downward revisions to growth in the fourth quarter before those headwinds hit suggest those transitory factors bear less of the blame than thought.
Reuters
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