The major components of domestic final demand contracted rapidly in the fourth quarter, including consumer spending, nonresidential fixed investment and residential investment. Indeed, housing production contracted at a 23.6 percent annual rate and subtracted 0.85 percentage point from the overall GDP growth rate.

Two surprises limited the fourth-quarter GDP contraction in the face of the retrenchment of domestic final demand. First, business inventory investment added 1.3 percentage points to the change in GDP and, second, net exports were a neutral force rather than a drag on growth.

Both performances were unsustainable, and the inventory buildup definitely has negative implications for the early part of this year. The buildup obviously was unintended, and firms undoubtedly will make strong efforts to cut stocks in the near term.

NAHB currently projects a 5.2 percent annualized rate of contraction in real GDP for the first quarter of 2009, the sharpest setback since the second quarter of 1982. Most major components of GDP will contribute to this decline, including inventories and trade, and the contraction in housing production will once again be a big part of the story.