Third Quarter GDP Shrinks as Consumers Slow Spending
The U.S. economy contracted
in the third quarter, signaling troubled waters ahead. In the third quarter GDP (total output of goods and services) shrank at a .3% annual rate. That's the worst performance since the 2001 recession.
Consumer spending, which makes up about 70% of total economic activity, declined 3.1% during the quarter, the first drop in 17 years and the worst since 1980.
The weak results show that a U.S. recession probably began before the mid-September credit freeze. In the coming months, employers are expected to cut payrolls sharply and consumers are likely to pull back spending as credit constraints weigh on borrowing capacity.
A sharp retreat in gasoline prices since the summer should ease pressure on consumers heading into the holiday shopping season. But the effects of the credit crisis may take a deeper toll as consumers are hit by tightening terms for credit cards, auto loans and home mortgages.
Economists forecast a GDP decline of as much as 4% in the final three months of the year. "The outlook for the fourth quarter and beyond is grim, dominated by a tapped-out consumer, ongoing weakness in housing, and an incipient downturn in capital spending that promises to gain momentum," said Joshua Shapiro, chief economist at MFR Inc.
Time for some metaphorical belt-tightening. Although, ironically enough, it is that reduced consumer demand that is deepening the recession.
