US economy shrinks during 3Q, signalling recession as consumers ease up spending
31 Oct 2008
Washington: The US economy contracted at a 0.3 per cent annual rate during the third quarter, marking its acutest shrinking in seven years.
The shrinkage comes in the face of consumers reducing spends and businesses curtailing investments on account of fears that a recession was setting in.
Real gross domestic product, the output of goods and services produced by labour and property located in the US, decreased at an annual rate of 0.3 per cent in the third quarter of 2008 (that is, from the second quarter to the third quarter), according to estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.8 per cent.
The bureau said that the third-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency. The third-quarter "preliminary" estimates, based on more comprehensive data, will be released on 25 November, 2008.
The Commerce Department said the third-quarter reduction in gross domestic product was the most since the corresponding quarter in 2001. Increased spending by the government in part offset a sharp retreat by consumers.
Consumer spending fuels two-thirds of US economic growth. It dropped 3.1 per cent in the third quarter, the first drop in quarterly spending since the closing quarter of 1991, and the biggest since the second quarter of 1980.
Spending on nondurable goods such as food and paper products too registered its sharpest drop rate since late 1950.
The US department of commerce said that the decrease in real GDP in the third quarter primarily reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending.
It said that imports, which are a subtraction in the calculation of GDP, decreased.
The Commerce Department's bureau of economic analysis also said that most of the major components contributed to the downturn in real GDP growth in the third quarter. It said the largest contributors were a sharp downturn in PCE for nondurable goods, a smaller decrease in imports, a larger decrease in PCE for durable goods, and a deceleration in exports.
Notable offsets were an upturn in inventory investment and an acceleration in federal government spending. It said that final sales of computers contributed 0.06 percentage point to the third-quarter change in real GDP after contributing 0.17 percentage point to the second-quarter change. Motor vehicle output contributed 0.09 percentage point to the third-quarter change in real GDP after subtracting 1.01 percentage points from the second-quarter change.
Economists quoted by the media opine that the economy would start its recovery process only by the second half of 2009, on account of the scope of job losses, sagging wage gains, restrictive credit conditions and the current housing market correction. They point out that consumer spending is heading toward an even larger decline. They also point out, that the US economy is now ''most definitely'' in a recession.
