The U.S. economy was hitting on virtually no cylinders in the fourth quarter, as gross domestic product fell at the fastest pace since 1982 on sharp declines in consumer spending, investment and exports, the government said Friday. GDP fell at a 6.2% seasonally adjusted annualized pace in the final three months of 2008, revised from the initial estimate of a 3.8% drop, the Commerce Department reported. It was the worst decline in GDP since a 6.4% decrease in the first quarter of 1982. Economists surveyed by MarketWatch had expected a revision to a 5.5% decline, based on updated monthly data on inventories, exports and other key measures. See Economic Calendar. The revision showed inventory investment and exports "substantially weaker" than first reported, the government said. Consumer spending was also revised lower. Read the full report. Final sales of domestic product fell 6.4%, the worst since 1980. Final sales to domestic purchasers, a measure of domestic demand, fell 5.7%, also the worst since 1980. Unadjusted for price changes, GDP fell 5.8% to an annual rate of $14.2 trillion in current dollar terms, the data showed. The recession The recession that began in December 2007 intensified in the fourth quarter following the government rescue of several large financial institutions and the collapse of Lehman Bros. The ensuing credit squeeze has driven consumer and business confidence to generational lows, and cost nearly 2 million Americans their jobs. Economists don't expect any relief in the current quarter, which ends March 31. The current projection sees first-quarter GDP falling at a 4.8% annual rate. Since 1947, GDP has never fallen by more than 4% for two quarters in a row. Most economists don't expect GDP to grow until the second half of the year, when the leading edge of the $787 billion fiscal-stimulus plan begins to have an impact. Federal Reserve Chairman Ben Bernanke said earlier in the week that he was confident the economy would rebound modestly later this year and into 2010, but only if the government's efforts to stabilize the banking system prove successful. Just as the GDP report was released, the Treasury Department reached an agreement to bolster Citigroup Inc.'s balance sheet by converting earlier taxpayer investments into common equity shares. See full story. Bright spots There were a few bright spots in the GDP report. Prices fell at the fastest pace on record, helping consumer and businesses' purchasing power. The personal consumption expenditure price index fell an annualized 5%, a record, while core prices rose just 0.8%. Real disposable incomes increased at a 3.4% pace. Another bright spot was the government sector, which added 0.3 percentage point to GDP growth. Ugly details But most of the report could only be described as ugly. Consumer spending fell at a 4.3% pace, the worst since 1980, and subtracted 3 percentage points from growth in the quarter. Spending on durable goods plunged 22.1%, the worst since 1987, while spending on nondurable goods fell a record 9.2%. Spending on services rose, up 1.4%.

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