Recession was deeper than gov't previously thought

WASHINGTON — The recession was deeper than the government previously thought.

The Commerce Department, in revisions issued Friday, estimates the economy shrank 2.6 percent last year — the steepest drop since 1946. That's worse than the 2.4 percent decline originally estimated.

The economy's plunge underscores why the unemployment rate surged to 10.1 percent in October, a 26-year high.

The revisions in gross domestic product, or GDP, now show zero growth in 2008. That compares with a 0.4 percent gain previously estimated.The economy also grew less in 2007 (1.9 percent) than earlier thought (2.1 percent).

For all three years, consumers spent less and home builders cut more deeply than had been thought. Those factors help explain the downward revisions on the economy.

The revisions also show that struggling state and local governments cut spending more last year than previously thought. And they spent less in 2007 and 2008.

The economy slid into its worst recession since the Great Depression in late 2007. Many economists think the recession ended last summer, although a panel of academics that dates the start and end of recessions hasn't declared when this one ended. The panel usually does so well after the fact.

From the start of the recession in December 2007 until the April-to-June quarter of 2009, the economy sank 4.1 percent. That was deeper than the 3.7 percent decline previously estimated for the recession.

GDP is the broadest gauge of the economy's health. It measures the value of all goods and services — from machinery to manicures — produced in the United States.

The Commerce Department's latest revisions reach back to 2007. They're based on more complete data and on methodology thought to be more accurate.