U.S. economy shrank 3.8 percent last quarter

The federal government today reported the biggest quarterly drop in 26 years. The news gives ammunition to President Obama as his call for a major economic stimulus package

Yes, the U.S. economy is, indeed, as bad as it feels.

The federal government today said economic activity shrank at an annual rate of 3.8 percent in the final quarter of 2008. It was the nation’s biggest decrease in 26 years.

“It was basically a train wreck for the economy in the fourth quarter,” Alan Levenson, chief economist at the investment company T. Rowe Price, was quoted as saying on the New York Times website.

Employers cut payrolls and spent less buying computers, office equipment and other capital goods, the Commerce Department reported. And American consumers, who had gorged themselves on credit card debt and home equity loans earlier in the decade, suddenly closed their wallets.

Consumer spending fell 3.5 percent in the final quarter of ’09, after decreasing 3.8 percent in the third quarter. That led to a decrease in trade, as Americans bought fewer foreign-made electronics and other gadgets.

Consumer spending accounts for about two-thirds of all U.S. economic growth.

Today’s glum news will likely intensify calls from the White House for Congress to pass a major economic stimulus package — and quickly.

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To read more, visit nyt.com or washingtonpost.com.

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