As the federal government and Reserve Bank consider stimuli and rate cuts, they will have flicked through, frowned over and then really fretted about the first estimate of American 4th quarter economic growth.

On a first reading, the 3.8% contraction wasn’t as bad as the 5.5% market forecast. Certainly quite a few analysts and investors made that mistake and pushed American shares and commodity prices higher.

After the 0.5% drop in September, a significant weakening had been expected, but the headline figure wasn’t bad, so the knee-jerk commentary went. Even so it was the worst growth performance since the third quarter of 1982.

But then those who had taken time to read the release in full found voice and the whole sorry story emerged.

The figures were rotten; terrible and carried nasty implications for growth in the current quarter. The better-than-expected figure was an illusion, propped up by a positive 1.3% contribution from inventories. Government expenditures grew at a 5.8% rate, and were another positive contributor as the US Government splurged in the final quarter to help the financial sector survive.

The news wasn’t good: in some parts of the economy the fall in output and demand were close to depression levels if they are maintained in coming quarters. Durable goods orders down nearly 23% in three months, a 22% turnaround in exports in the quarter, imports falling as demand tanks.

But excluding the inventory build-up, final demand for goods and services fell at a 5.1% rate. That’s a big crunch compared to the fall of 1.3% in the September quarter.

The real estate sector remained a black hole, with investment in residential structures plunging 19.1% (down just 1.7% in the third quarter). It will be weak again this quarter. Only Government spending will support the economy as business starts running down stocks by cutting production.

But there were other sectors that had bad news as well. Real personal consumption expenditures decreased 3.5% in the fourth quarter, compared with a decrease of 3.8% in the third.

Durable goods fell 22.4% against a decrease of 14.8%. Non-durable goods fell 7.1%, unchanged from the third quarter. Real residential fixed investment decreased 23.6%, compared with a decrease of 16.0%. Real exports of goods and services fell 19.7% in the fourth quarter, in contrast to an increase of 3.0% in the third. Real imports of goods and services fell 15.7%, compared with a decrease of 3.5%.

Apart from Government spending (including defence spending), there’s no life in the US private sector or among US consumers, who account for 70% of economic activity.

That’s why some economists are starting to project a 5% plus contraction for this quarter when they had pencilled in a smaller 2%-3% after what they had forecast for December.

The December forecast will still be re-worked in the next two updates of GDP growth from the Department. More details on trade, consumer spending and credit will be factored. It could contract by more than the first estimate of 3.8%.

What worries many analysts is the story associated with the surprise build-up in stocks. If it’s not reworked lower in subsequent updates, that rise in stocks shows that US business was caught badly and had simply ignored the message coming from the economy as consumer spending dropped from September-October onwards.

The stocks surge helps explain why so many US companies are cutting jobs: from Caterpillar and Target, to drug companies, banks (understandable) and throughout manufacturing.

It seems as though many companies had failed to keep track of sales and stock positions and their margins until very late in the quarter and when they got their monthly and quarterly figures, got out the axe, chopped earnings forecasts, dividends in some cases, and hundreds of thousands of jobs.

And that’s the worry: higher stocks mean less production this quarter and fewer jobs.

This Friday sees the release of the US January jobs report. It could very well be the ugliest month so far, even after December’s 700,000 slump. First job were 588,000 in the second last week of January. There has been no let-up in the level of claims. The unemployment rate could jump closer to 8% from 7.2% in December and the underemployment rate could lurch to around 14%.

That’s the real message from the GDP figures.