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Thursday, October 30, 2008

Economy Contracts 0.3% in Third Quarter

By Ken Sweet

FOXBusiness

The U.S. economy contracted in the third quarter, marred primarily by the weakest consumer spending in nearly three decades, the Commerce Department reported Thursday.

It marks the first of what many economists say will be two or more quarters of negative growth. Two consecutive negative-growth quarters are needed for economists to officially declare a recession.

The Commerce Department said the U.S.’s gross domestic product declined by a seasonally adjusted pace of 0.3%. It was the first estimate of third quarter GDP.

The number, however, was better than what economists had expected. According to Thomson Reuters, Wall Street economists were expecting a decline of 0.5% in GDP.

Of the components tracked by the government, consumer spending was the biggest drag on the economy. Consumer spending, which accounts for around 70% of the U.S.’s GDP, fell by 3.1%. It was the sharpest drop in consumer spending since the second quarter of 1980.

Government spending rose by 5.8% in the quarter, primarily because of military spending.

“The economy is in recession,” said Ian Shepherdson, chief U.S. economist with High Frequency Economists.

Shepherdson expects the economy to contract by 1% in both the fourth quarter this year, and in the first quarter of 2009.

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