WASHINGTON (PNN) - February 25, 2011 - Deeper spending cuts by state and local governments weighed down U.S. economic growth in the final three months of last year.

The government's new estimate for the October-December quarter illustrates how growing state budget crises reflect the ongoing Second Great Depression in which the United States is currently embroiled.

The Commerce Department reported Friday that economic growth increased at an annual rate of 2.8% in the final quarter of last year. That was down from the initial estimate of 3.2%.

The weaker figure was disappointing and prompted some economists to lower their forecasts for economic growth in the current January-March quarter.

State and local governments, wrestling with budget shortfalls, cut spending at a 2.4% pace. That was much deeper than the 0.9% annualized cut first estimated and was the most since the start of 2010.

Consumers spent a little less than first thought. Their spending rose at a rate of 4.1%, slightly smaller than the initial estimate of 4.4%. Still, it was the best showing since 2006.

One of the crucial questions is whether consumers can spend enough this year to help offset negative forces in the economy - notably struggling state and local governments and a wobbly housing market that has depressed homes values.

Rising energy prices also pose a danger. If oil prices were to rise to $150 or more a barrel and then stay there for months, then the Depression will only get worse. Gasoline prices would near $5 a gallon. Consumers and businesses would spend much less, and some employers might slash jobs.