U.S. Economy Shrinks at 3.8% Pace in Fourth Quarter 2008

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

As jobs disappear and major investments tank in value, consumers slashed spending at a 3.5 percent pace at the final quarter of 2008, following a bigger 3.8 percent cutback in the third quarter.

Spending by homebuilders plunged at a 23.6 percent pace in the fourth quarter, even deeper than the 16 percent annualized cut in the prior three months. That marked the 12th consecutive quarterly drop in this area.

Businesses cut their spending on equipment and software at a whopping 27.8 percent annualized pace in the fourth quarter, the highest since early 1958.

Meanwhile, U.S. exports, whose growth earlier last year helped keep the economy afloat, turned negative. Exports plunged at a rate of 19.7 percent in the fourth quarter, the highest since the third quarter of 1974.

The big drop came as economic slowdowns in other countries cut into demand for U.S. goods and services.

The report provided clear evidence that the world's largest economy has been hit badly by the still ongoing housing, credit and financial crises.

To revive the economy, the U.S. House passed a 819-billion-dollar economic stimulus plan Wednesday and the bill is working its way through the Senate.

The figure of 3.8 percent is expected to be revised twice by the Commerce Department based on more complete data.