WASHINGTON – The nation’s economy shrank in the third quarter, in its worst performance since 2001, based on final figures released today by the U.S. Department of Commerce’s Bureau of Economic Analysis.
The U.S. “real” gross domestic product (GDP adjusted for inflation) shrank at an annual rate of 0.5 percent in the July to September period – after growing at a downwardly-revised 2.8-percent annual rate in the second quarter (READ MORE) – the BEA said in its final of three GDP estimates for the period.
The third-quarter figure – unchanged from the BEA’s “preliminary” report last month but 40 percent larger than the 0.3-percent decline of its September “advance” estimate – matched the median forecast from a Bloomberg News survey of 65 economists. (Their estimates called for a third-quarter decline of 0.4 to 0.8 percent.)
The third-quarter decline was led by personal consumption spending, which fell even more sharply than previously thought; slower growth in residential fixed investment (mostly, housing construction); and a sharp drop in equipment and software purchases, the BEA said. But those “negative contributions” were partly offset by sharp increases in federal spending and private inventory investment, a decline in U.S. imports and a “deceleration” of state and local government spending, the bureau added.
Real personal consumption expenditures (PCE adjusted for inflation) fell at a revised 3.8-percent annual rate – even sharper than the 3.7-percent decline of last month’s “preliminary” report – after growing at a 1.2-percent rate in the second quarter. It was the nation’s first quarterly decline in consumer spending since 1991 and its sharpest since 1980.
Among consumer purchases, durable-goods purchases fell at a 14.8-percent pace, non-durable goods at a 7.1-percent pace and services at a 0.1-percent pace in the third quarter, the BEA said. “Core” spending excluding food and energy goods rose at a 2.4-percent pace, slowing from the 2.6-percent pace of last month’s estimate.
Housing construction fell at a revised annual pace of 16 percent, accelerating from the second quarter’s 13.2-percent pace, the BEA said. That decline is likely to accelerate in the fourth quarter, based on recent housing-start and permit reports. (READ MORE)
“Some of the factors that led to negative growth in the third quarter will be amplified this quarter,” Dana Saporta, an economist at Dresdner Kleinwort in New York, told Bloomberg News. “We have negative growth factored into our forecast through the first half.”
Saporta predicted the GDP will shrink at a 5.4-percent annual pace in the fourth quarter, while a recent Bloomberg survey predicted the economy will shrink this quarter at a 4.3-percent annual rate and continue to decline into mid-2009. (READ MORE) The GDP increased 2.0 percent in 2007, slowing from growth rates of 2.8 percent in 2006, 2.9 percent in 2005 and 3.6 percent in 2004, BEA figures show.
Meanwhile, corporate profits from current production fell at a 1.2-percent annual pace compared with the second quarter, in their seventh quarterly decline of the past two years, the BEA said. Domestic profits of financial corporations shrank by $75.5 billion during the July-to-September period, more than doubling the second quarter’s $31.0 billion decline.
Compared with a year ago, corporate profits were down 9.2 percent. (READ MORE)
Additional information, including the full Gross Domestic Product and Corporate Profits report, is available from the U.S. Department of Commerce’s Bureau of Economic Analysis at www.bea.gov.
