US recession deeper, revisions growth outlook

New data on Friday showed the 2007-2009 recessions was much more severe than prior measures had found, with economic output declining a cumulative of 5.1 percent instead of 4.1 percent.

The annual revisions of US GDP data from the Commerce Department showed economic growth contracted at an annual average rate of 0.3 percent 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 a rate of 8.9 percent the steepest quarterly decline since 1958, and 2.1 percentage points more than previously reported. For a table, see

The recession was already the deepest since the Great Depression and, while it still pales in comparison, the data help explains 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 an even bigger decline," Steven Landfall, 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 percent in 2008; the department had previously reported it was flat. In 2009, it shrank 3.5 percent instead of 2.6 percent.

In the first quarter of 2009, the economy shrank at a 6.7 percent 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 percent pace from a previously reported 5.0 percent rate.

The revisions also showed weaker income growth. Disposable income adjusted for inflation grew at an average annual rate of 0.6 percent between 2007 and 2010, rather than 1.2 percent.

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.

The data also showed the current lull in activity began earlier than had been thought, with the economy losing steam late last year. Growth in the fourth quarter of last year was at a tepid 2.3 percent annual rate, not the solid 3.1 percent pace that had been believed.

That could raise questions on the long held view by both Federal Reserve officials and independent economists that the slowdown in growth as the year started was largely the result of transitory factors.

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 continued weak tone in the data so far and the downward revisions to growth in the fourth quarter before those headwinds hit suggest a more troubling and fundamental slowdown might be underway.

Copyright Reuters, 2011