Data released on Friday are likely to show that the US economy contracted at an annualised rate of roughly 6 per cent in the final quarter of 2008 – its worst performance since at least 1982.

The decline is likely to be broad-based, with consumption falling at an annualised rate of about 4 per cent and business investment in equipment and software falling at a much sharper pace – about 17.5 per cent annualised, according to estimates by Goldman Sachs.

Housing continued to contract at a brutal rate. Exports are also likely to have declined at an extremely rapid pace, with only a big decline in the (larger) volume of imports preventing a very big drag on growth from trade.

The report will validate the belief that the US economy, which was already weakening before the intensification of the credit crisis in September, stepped down abruptly in the final months of the year.

Industrial production, which declined at an annualised rate of about 15 per cent in the quarter, was particularly badly hit.

The deterioration in the domestic US economy was amplified by the worsening of growth dynamics outside the US – which has been even more rapid. This suggests the US may have to lead the way out of recession, rather than draw strength from a benign global environment, as Japan was able to do for much of the 1990s and again in the mid-2000s.

the fourth quarter all but guarantees a sharp contraction in the first quarter of 2008 as well.

Larry Meyer, chairman of Macroeconomic Advisers, says the economy “carried considerable negative momentum into the current quarter”. Analysts have been revising up their estimates of the pace of decline this quarter – which could end up being nearer 5 per cent annualised than earlier estimates of about 3 per cent.

Yet while the fourth quarter figures give a pretty good indication of the likely growth profile in the very near term, they offer relatively little insight beyond this.

Economists simply do not know whether the sudden pull-back in economic activity which took place after the crises at Lehman Brothers and AIG was a brutal but short-lived adjustment or part of something much bigger and more protracted.

Tom Gallagher, an analyst at broking firm ISI, says there are “small hints that the pace of decline in GDP may be moderating”.

Regional surveys suggest manufacturing activity recovered a little in January. The number of new people filing unemployment claims has slowed and the Conference Board’s job survey improved in January – though large headline job cuts by big companies in recent days put this finding in question.

But Richard Berner, co-head of economics at Morgan Stanley, says “false dawns are common in recessions”.

While the rate of decline may not be getting worse, it is probably not getting much better either – most likely it is roughly stable. Durable improvement may have to wait for the impact of dramatic policy interventions that operate with long and uncertain time lags.

The enormous effort by the Federal Reserve to ease strains in the money market does seem to finally be bearing fruit, and mortgage rates are lower on net in recent months. But a recent back-up in mortgage rates has reduced refinancing. Moreover, interbank liquidity is still not spilling over into securitised markets for credit, and bank lending is unlikely to revive without a full-scale clean-up of the banking sector.

Large-scale fiscal stimulus is on its way, and has already boosted confidence. But its actual spending impact will only really build from August onwards. All this suggests that even on an optimistic scenario the US economy will contract for at least another six months. • Mass redundancies by US employers slowed in December, data showed yesterday, but the number of workers affected rose from the previous month as companies continued to cut payrolls aggressively, Reuters reports from Washington.

The Labor Department said the number of mass redundancies – defined as job cuts involving at least 50 people from a single employer – decreased by 58 in December from the previous month to 2,275 on a seasonally adjusted basis.

A total of 226,117 workers were involved, seasonally adjusted, 478 more than in November. The total number since the start of the recession in December 2007 totalled 23,485.

www.ft.com/cms/s/0/2f14ec0c-ed6f-11dd-bd60-0000779fd2ac.html