WASHINGTON / NEW YORK, Jan 30: The US economy shrank at its fastest pace in a quarter century from October through December, the government reported on Friday.

The report by the US Bureau of Economic Analysis reveals all the signs of a serious global slowdown — big declines in personal spending, business investment and trade flows, and the lowest levels of inflation seen in decades.

In the United States, real gross domestic product — the output of goods and services produced by labour and property located in the United States — decreased at an annual rate of 3.8 per cent in the fourth quarter of 2008, according to advance estimates released by the US Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 per cent.

The decline would have been much steeper (more than 5 per cent) if shipments of goods had fallen as sharply as orders, the report added.

The decline in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased. Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third.

The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports.

Final sales of computers subtracted less than 0.01 percentage point from the change in real GDP after subtracting 0.01 percentage point from the third-quarter change. Motor vehicle output subtracted 2.04 percentage points from the fourth-quarter change in real GDP after contributing 0.16 percentage point to the third-quarter change.

The US current-account deficit — the combined balances on trade in goods and services, income, and net unilateral current transfers — decreased to $174.1 billion in the third quarter of 2008 from $180.9 billion in the second quarter. The decrease was accounted for by increases in the surpluses on income and on services and decreases in the deficit on goods and in net unilateral current transfers to foreigners.

The deficit on goods and services decreased to $176.5 billion in the third quarter from $180.1 billion in the second.

The report shows that consumer spending and business investment all but disappeared, and economists said the contraction was likely to continue at an alarming pace well into the summer.

American consumers, who took on home equity loans and large amounts of credit card debt to finance their lifestyles earlier in the decade, curtailed their spending for a second consecutive quarter. Consumer spending, which typically accounts for two-thirds of economic growth, fell 3.5 per cent in the quarter, after decreasing 3.8 per cent in the third quarter.

With no end in sight to the downturn, the stark numbers on Friday are likely to intensify the debate over an enormous stimulus plan moving through Congress.

While many economists say the stimulus is crucial to replacing a paucity of private spending and investment, they are concerned that the tax cuts in the Democratic plan will not be particularly useful, and that more effective spending proposals will take too long to put in place.

The pace of contraction in the fourth quarter was the steepest since 1982, when the economy shrank at an annual rate of 6.4 per cent in the first three months of the year, after the Federal Reserve limited bank borrowing as a means of strangling inflation.

Economists warned that it might be more difficult to pull the US out of this recession than the downturn of the 1980s, when the Federal Reserve helped to stimulate growth by slashing interest rates. In December, the Fed cut its target overnight rates to a record low near zero percent, exhausting one of its key weapons.