The U.S. economy shrank at its fastest pace in a quarter century from October through December, the government reported Friday, as consumer spending and business investment collapsed, signaling more economic contraction in the months ahead.

In the broadest official accounting of the toll of the credit crisis, the U.S. Commerce Department reported that gross domestic product shrank at an annual rate of 3.8 percent in the fourth quarter of 2008. While that was less than economists’ expectations of a 5.5 percent slide, the decline would have been much steeper – more than 5 percent – if shipments of goods had fallen as sharply as orders reports the International Herald Tribne.

President Barack Obama seized on the figures Friday morning, calling the economic contraction a “continuing disaster” for working families, and again urged Congress to pass a package of tax cuts and spending. The House of Representatives, divided on party lines, passed an $819 billion stimulus plan Wednesday, and the Senate is expected to take up the measure next week. Obama and most Democrats support the plan, but not a single Republican has voted for it.

“What we can’t do is drag our feet or delay much longer,” Obama said. “The American people expect us to act.”

The president also announced the creation of a Task Force on Middle-Class Working Families, which will seek to raise living standards of working families. It will be led by Vice President Joseph Biden, who said Friday that “a strong middle class equals a strong America.”

Wall Street opened higher but then retreated after the numbers were released, with the Dow Jones industrial average down more than 100 points in midafternoon trading. The broader Standard & Poor’s 500-stock index was down 1.5 percent.

The slide in gross domestic product – the value of the goods and services produced in the United States – is likely to continue at an alarming pace well into the summer as consumers continue to curtail spending and businesses reduce their capital investments and cut their payrolls, economists said.

In the fourth quarter, rising inventories accounted for the difference between the overall 3.8 percent contraction of the economy and a steeper 5.1 decline in final domestic sales. With inventory accumulation gone, the economy would contract in the first quarter at more than a 5 percent annual rate, predicted Nigel Gault, chief U.S. economist at IHS Global Insight.

Read more here: U.S. economy posts fastest decline in 26 years