Poor Momentum Going into 2009 U.S. real GDP declined at an annualized rate of 3.8 percent in the fourth quarter. Although the decline was the largest contraction since the first quarter of 1982, it was not nearly as bad as the 5.5 percent plunge the consensus expected. The real surprise was the unexpected increase in real inventories, which rose $6.2 billion in the fourth quarter following a $30 billion drawdown in the third quarter. Inventories made a positive contribution to GDP growth equal to 1.3 percentage points in the fourth quarter. Consumer spending plunged at a 3.5 percent pace in the quarter as spending on big-ticket items like motor vehicles and home electronics plummeted. Businesses also cut back on new plant and equipment outlays. Within fixed investment spending, purchases of equipment and software plunged nearly 28 percent -- the sharpest quarterly decline in fifty years. As if to rub salt in the wound, gross exports plunged nearly 20 percent, a by-product of recession in most foreign countries. However, gross imports also tanked (down nearly 16 percent), so there was little overall effect on GDP from net exports.