Fourth Quarter Gross Domestic Product Unrevised at 0.6%

WASHINGTON --The economy nearly sputtered out at the end of the year and is probably faring even worse now amid continuing housing, credit and financial crises.

The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6% annual rate in the October-to-December quarter. The reading -- unchanged from a previous estimate a month ago -- provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9% growth rate.

The gross domestic product (GDP) measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

Many economists say they believe growth in the current January-to-March quarter will be even weaker than the 0.6% figure of the previous quarter. A growing number also say the economy may actually be shrinking now. Under one rough rule, the economy needs to contract for six straight months to be considered in a recession. The government will release its estimate for first-quarter GDP in late April.

In another report, fewer people signed up for unemployment benefits last week, although that didn't change the broader picture of a deteriorating jobs market. The Labor Department said jobless claims fell by 9,000 to 366,000, a better showing than many economists were forecasting. Still, unemployment is expected to rise this year given all the problems clobbering the economy.

The newly released fourth-quarter GDP figure matched analysts' expectations.

Thursday's report underscored the damage to the economy from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes.

Against that backdrop, builders slashed spending on housing projects by a whopping 25.2% on an annualized basis in the fourth quarter, the biggest cut in 26 years.

To limit the damage from the crises, the Federal Reserve has taken a number of extraordinary actions. It has slashed a key interest rate over the last two months by the most in a quarter century. And to relieve turmoil on Wall Street, which intensified after the crash of the country's fifth-largest investment firm, Bear Stearns, the Fed has resorted to its greatest expansion of lending authority since the 1930s. Big securities firms will temporarily be allowed to go to the Fed directly for loans -- a privilege that had been afforded only to commercial banks.

Consumers, whose spending is indispensable to the economy's vitality, boosted buying at a 2.3% pace in the fourth quarter. That was better than the 1.9% growth rate previously estimated but still marked a slowing from the third quarter's 2.8% pace.

Businesses -- nervous about customers' waning appetite to buy given all the problems in the economy -- cut back sharply on their inventories of unsold goods. That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.

Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1% in the final quarter of last year. That was slightly less than previously estimated and marked a slowdown from the prior quarter's 6.2% growth rate.

Businesses profits also took a hit in the final quarter. A measure linked to the GDP report showed that after-tax profits fell 3.3% at the end of last year, after being flat in the prior quarter.

There was a bright spot in the mostly gloomy report, however. Sales of U.S. goods and services to other countries grew at a 6.5% pace. That was better than the 4.8% growth rate previously estimated, although it was down sharply from the prior quarter's blistering 19.1% growth rate.

U.S. exports have been helped by the sinking value of the U.S. dollar, which makes U.S. goods less expensive to foreign buyers. The U.S. dollar recently plunged to record lows against the euro and has fallen sharply against the Japanese yen.

The drooping dollar can aggravate inflation pressures.

An inflation measure linked to the GDP report showed that overall prices increased at a rate of 3.9% in the fourth quarter. That was not as high as previously estimated but marked a big pickup from the third quarter's 1.8% pace.

Another gauge showed that "core" prices -- excluding food and energy -- grew at a rate of 2.5% at the end of last year. That was down from a previous estimate of a 2.7% pace but was up from the prior quarter's 2% growth rate.

The new core inflation figure is above the Fed's comfort zone -- the upper bound of which is a 2% inflation rate.

Although the Fed's No. 1 job is trying to save the economy from a deep and prolonged recession, it is also keeping close tabs on inflation and soaring energy prices.

Oil prices are topping $105 a barrel. Gasoline prices have marched higher, too. High energy prices can spread inflation if lots of companies boost prices charged to customers for a wide range of goods and services. High energy prices also can be a drag on overall economic growth by crimping consumer spending.

The combination of slowing economic growth and rising inflation make the Fed's job more difficult. It also has raised fears the country may be headed for a bout of stagflation, a scenario the U.S. hasn't experienced since the 1970s. Fed Chairman Ben Bernanke, however, has said that's not the case.