October 30, 2008
The US economy contracted in the third quarter as panicked consumers slashed spending, data showed Thursday in the first downside leg of what analysts say could be a deep and nasty recession.
In its first reading of gross domestic product (GDP) in the July-September period, the Commerce Department said output of goods and services fell at a 0.3 percent annual pace amid a sharp retrenchment by consumers and businesses.
- A d v e r t i s e m e n t
The drop in gross domestic product (GDP) was the first negative figure since the fourth quarter of 2007.
The decline, not as steep as the 0.5 percent annualized drop expected by private economists, comes amid mounting expectations of a sharp falloff in the US economy amid the worst banking and financial crisis in decades.
Some analysts said the drop could be just the start of a deep and painful recession, which is normally defined as two consecutive quarters of negative growth.
“A heftier decline in real GDP is likely in the fourth quarter, which will confirm that the US economy is in recession,” said Dawn Desjardins, economist at RBC Capital Markets.
The decrease marked a sharp fall from the 2.8 percent growth rate of the second quarter and reflected weaker consumer and business spending and housing activity, offset in part by strong exports and government spending.
With the decline, economic output was estimated at an annualized 14.43 trillion dollars.
“What is noticeable is that the US economy is hanging onto support from exports that will not last in the fourth quarter,” said Avery Shenfeld, economist at CIBC World Markets.
“The rest of the world is slowing and the rising dollar will take some of the shine off exports. The fourth quarter is going to be much worse, with a decline of perhaps as much as two percent.”