Jan. 31--U.S. economic prospects grew bleaker yesterday with a key report showing that the nation's economy finished 2008 with its biggest decline in 26 years.

"It is virtually certain that the rate of decline in almost every sector will accelerate in the absence of a serious stimulus" from Congress, said Dean Baker, codirector of the Center for Economic and Policy Research in Washington.

In keeping with the furious retrenching by business, Philadelphia-area companies in diverse industries yesterday announced an array of cost-cutting steps that illustrate the extraordinary spread of the global recession.

Nationally, a collapse in the automotive industry and plummeting sales of equipment and software to businesses were the main forces behind the 3.8 percent decline in gross domestic product, the broadest measure of the nation's output of goods and services.

The tailspin could well accelerate in the current quarter to a rate of 5 percent or more as the recession churns into a second year and consumers and businesses buckle under a relentless crush of negative forces.

The GDP report came at the end of a month when embattled U.S. employers announced 270,000 job cuts here and abroad in an effort to survive the global slump that some economists say is the worst since World War II.

"The economy ground to a halt at the end of last year," said Joel Naroff, chief economist for TD Bank.

Yesterday's announcements by local companies show the scramble to survive:

Pep Boys -- Manny, Moe & Jack, the Philadelphia automotive service and automotive parts retailer, said it froze merit-pay increases; cut 50 jobs, or 11 percent of the support staff for its 560 stores; and made company contributions to workers' 401(k) retirement plans contingent on meeting 2009 profit targets.

Kulicke & Soffa Industries Inc., a Fort Washington manufacturer of equipment used to produce semiconductors, reduced hours for factory workers -- most of whom are overseas -- and cut pay for salaried employees by 5 percent to 20 percent to save $8.1 million a year.

The company, which laid off 240 of about 2,500 employees in November, also warned that more layoffs were coming.

Kulicke & Soffa's revenue plummeted 70 percent in its most recent quarter and is not expected to improve in the current quarter.

"Customers aren't even buying enough right now to replace machines that wear out and die," the company's chairman and chief executive, Scott Kulicke, said on a conference call.

Even Ametek Inc., a Paoli manufacturer known for steadily increasing its revenue year after year through internal growth and small acquisitions, predicted 2009 would be an off year.

With orders down 10 percent in the fourth quarter, Ametek said it would dismiss more than 10 percent of its 12,000 employees and shut or reduce capacity at 10 factories.

Ametek, which makes electric motors, electronic instruments, gauges, bearings and other products for a wide range of industries, had 87 factories in 20 states and 12 foreign countries at the end of 2007.

In a sign of just how extraordinary these times are, Wilmington Trust Corp. reported its first annual loss since its founding in 1903 by the DuPont family.

Ted T. Cecala, the bank's chairman and chief executive, said relatively new accounting rules forcing companies to recognize the current value of investments were a huge contributor, but not the only factor, in the $23.6 million loss the bank reported yesterday for 2008.

"It's a culmination of events that hopefully we'll never see again in our working lives," Cecala said.

Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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