The performance of the US economy between October and December was the worst since the first quarter of 1982.
This is a much more severe global downturn that had been anticipated
Scott Brown, Raymond James & Associates
Although the 3.8% decline was not as bad as the 5.4% drop expected by the markets, analysts said the report still made grim reading.
Spending on durable goods, such as cars, furniture and domestic appliances, plunged 22.4% during the quarter, the biggest drop in this figure since 1987.
The amount spent on food and clothing dropped 7.1%, the steepest quarterly decline since 1950. Overall consumer spending was down 3.5%.
Overall exports fell by 19.7%.
The US recession in worsening
Meanwhile, business equipment and software spending was down 27.8%, with spending by homebuilders down by 23.65%.
Nigel Gault, chief US economist at Global Insight, said the figures "did not look healthy".
Fellow analyst Scott Brown, chief economist at Raymond James & Associates agreed, saying the details "were pretty terrible".
"This is a much more severe global downturn that had been anticipated," he said.
Other commentators said the decline in fourth quarter GDP would have been much worse, were it not for a big increase in firms stockpiling goods they effectively couldn't sell.
"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.
The data came as heavy equipment firm Caterpillar said it was cutting an extra 2,110 jobs.
Global oil prices were up in Friday afternoon trading, lifted by growing signs producers cartel Opec will cut production, and the fact that the US GDP figure was - at least on the face of it - not as bad as expected.
US light crude was up $1.34 to $42.78 a barrel, while London Brent had added $1.70 to $47.10.
President Barack Obama's $819bn (Ł572bn) economic stimulus package passed through the House of Representatives on Thursday by a vote of 244 to 188.
No Republicans backed the plan, saying it was too expensive and would not work.
The Senate debates the plan next week, and it could face stiff opposition as the Democrats have a slimmer majority in the upper chamber.
After Thursday's vote, President Obama urged members of Congress not to "drag our feet or allow the same partisan differences to get in our way".
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