US economy deeper in the red; GDP contracts 0.5 per cent in Q3

The world's largest economy, the US, seems to be in deeper recession than the 0.5 per cent contraction in the third quarter revealed as the ravaging financial market turmoil clips consumer spending and investment.

Long lines are already visible at food pantries across America and the food banks have reported a 30 per cent rise in requests for emergency food assistance, according to Feeding America -  the nation's largest hunger relief organisation - which supports 63,000 agencies.

Charity groups are calling on Washington for more federal assistance as they expect the situation to grow worse in 2009 amid rising unemployment.

US employers have cut 533,000 jobs in November alone, the highest monthly number in 34 years.

Data released by the Bureau of Economic Analysis showed that real GDP in the US contracted 0.5 per cent in the third quarter, the steepest fall since the third quarter of 2001. The second quarter, however, saw US economy grew by 2.8 per cent.

The third quarter decline in real GDP, arising from negative growth of personal consumption expenditures, residential fixed investment and equipment and software, were to some extent offset by contributions from federal government spending, private inventory investment, exports, non-residential structures, and state and local government spending.

The US financial crisis has pushed other developed economies, including Japan, Germany, Singapore and Italy, deep into recession.

United States, Britain and other European economies are dragging Asian economies also deeper into the recession even as authorities from Washington to Tokyo work hard to find a way out of the worst downturn in decades.

The Japanese government today approved its biggest-ever budget to revive its economy while US President-elect Barack Obama sought to clinch a deal with congressional lawmakers on a massive stimulus package before the Christmas Day.

Housing, which has been at the root of the year-long US slump, showed its biggest loss with record drop in sales and prices last month.  Economists expect the economy to decline more in the current quarter than in the third quarter.

Britain, the world's fifth-largest economy, is in an equally dire straits with house prices set to fall 10 per cent next year, after data showed the economy shrank 0.6 per cent in the third quarter.

Japan, meanwhile, reported a record drop in exports -- the mainstay of an economy.

Japan's central bank is expected to cut its key rate to zero from 0.1 per cent and revive a policy of flooding banks with interest free cash. Japan's cabinet also approved a record 88.5 trillion yen ($980.6 billion) budget for the next fiscal year starting April, with 12 trillion yen in additional spending on government stimulus packages.

But markets are skeptical whether the Japanese budget or Barack Obama's near agreement with congressional Democrats on a huge emergency spending will help economies get out of the rut.