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Recession Deepens as U.S. Economy Shrank 0.5% in Third Quarter

By Mike Caggeso
Associate Editor
Money Morning

The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year.

Dana Saporta, an economist at Dresdner Kleinwort in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter.

“Some of the factors that led to negative growth in the third quarter will be amplified this quarter,” Saporta said. “We have negative growth factored into our forecast through the first half” of 2009.

According to Commerce Department figures, consumer spending fell 3.8% in the third quarter, a sharp contrast from the 1.2% increase in the second quarter – marking the biggest drop in 30 years.

Residential fixed investment, the gross domestic product (GDP) component that includes spending on housing, dropped by 16.0% in the third quarter after falling 13.3% in the second quarter.

Real nonresidential fixed investment decreased 1.7%, in contrast to an increase of 2.5% in the second.

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Fresh statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997. And the national medium home price fell 13.2% from last year to $181,300, the largest drop since the NAR started tracking statistics, and likely the largest decline since the Great Depression, said Lawrence Yun, the trade group’s chief economist.

“Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets,” Yun said in a news release. “More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages.”

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This entry was posted on Wednesday, December 24th, 2008 at 11:25 am and is filed under Home Page, Mike Caggeso. You can follow any responses to this entry through the RSS 2.0 feed. Due to the amount of comments we receive Money Morning will not be able to respond to all questions. If you have not already registered to leave a comment, once doing so you will receive Money Morning's Daily Email.

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  1. Pingback by Jutia Group - Market Jitters & Political Critters on 25 December 2008:

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  2. Comment by Jay Salvati on 28 December 2008:

    Sadly, the worst is yet to come with mortgage ARMs and commercial real estate still to make their impact.

    I think we have all learned the lesson of a lifetime with this. Well, all except those on Wall Street who will come up with another deceitful tool to rob the hardworking men and women of this country.

  3. Pingback by U.S. Home Prices Post Record 18% Annual Drop in October on 30 December 2008:

    [...] statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997, NAR reported last [...]

  4. Pingback by Financial Crisis Challenges Escalate as Republicans Announce Plans to Oppose $825 Billion Obama Stimulus on 26 January 2009:

    [...] Money Morning News: Recession Deepens as U.S. Economy Shrank 0.5% in Third Quarter. [...]

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