The US economy contracted at a 3.8 percent pace in the fourth quarter of 2008, the worst performance since 1982, government data showed Friday.
The decline marked a sharp downward acceleration in economic activity after a 0.5 percent drop in the third quarter.
But the figure was not as bad as feared, with analysts on average predicting a 5.5 percent annualized drop in gross domestic product (GDP).
Still, analysts took little comfort in the data, which was skewed by a high rate of inventories, suggesting business were surprised by the depth of the downturn and may have to cut production further in 2009.
"The headline GDP figure was better than expected but this is very much an illusion supported by an unexpected increase in business inventories," said Sal Guatieri, senior economist at BMO Capital Markets.
Guatieri said that the milder-than-expected fourth-quarter drop could mean an even steeper decline in the first quarter of 2009.
"We were running with a forecast of down 4.3 percent (in the first quarter) but we will likely revise that lower," he said.
The world's biggest economy has been in recession since December 2007, according to the National Bureau of Economic Research, a private research group accepted as the arbiter of business cycles, even though up to now the economy had not shown two consecutive quarters of decline.
Over all of 2008, the US economy grew 1.3 percent, with total output of goods and services of 14.26 trillion dollars.
The fourth-quarter figure was not as weak as expected, with inventory stockpiling by businesses adding to activity. Excluding that, the so-called final demand for goods and services decreased at a 5.1 percent rate.
Government expenditures grew at a 5.8 percent rate, another positive contributor.
But the real estate sector remained a black hole, with investment in residential structures plunging 19.1 percent.
"The headline wasn't as bad as feared but the details were pretty terrible," said Scott Brown, chief economist at Raymond James & Associates.
"This is a much more severe global downturn that had been anticipated."
Ian Shepherdson, chief US economist at High Frequency Economics, said, "We are not comforted" by the report.
He said consumer spending, the main driver of activity, showed a 3.5 percent drop and that business spending on equipment and software down a massive 27.8 percent, the biggest drop in 50 years.
"The big mystery, though, is the 6.2 billion dollar rise in inventories, whih bears no resemblance to the monthly numbers," he said. "It makes us more bearish for the first quarter because this rise has to reverse in some size."
