WASHINGTON -- The economy shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century, and probably isn't doing much better now.

The Commerce Department on Thursday reported that the economy was sinking a bit faster than the 6.2 percent annualized drop for the October-December quarter estimated a month ago.

Consumers are cutting back under the weight of rising unemployment, falling home values and shrinking investment portfolios. Those factors have forced companies to slash production and jobs. All the negative forces are feeding on each other in a vicious cycle that has deepened the recession, now in its second year.

Economists were bracing for an even sharper 6.5 percent annualized decline in the government's third and final estimate of gross domestic product for the fourth quarter.

Still, the results were dismal. The economy started off 2008 on feeble footing, picked up a bit of speed in the spring and then contracted at an annualized rate of 0.5 percent in the third quarter.
The faster downhill slide in the final quarter came as the financial crisis -- the worst since the 1930s -- intensified.

The main culprit behind the GDP downgrade was that businesses' cut inventories more deeply than estimated a month ago. That shaved 0.11 percentage points off fourth-quarter GDP, rather than adding 0.16 percentage points in the previous report.

Builders also cut spending on commercial construction more deeply through previously thought.