US economy shrinks in Q3 as slump deepens

By Timothy R. Homan  |   2008-12-24  |     NEWSPAPER EDITION

THE United States economy shrank in the third quarter at a 0.5 percent annual pace as the now year-old recession intensifies.

The contraction in gross domestic product from July through September, which matched the median forecast in a Bloomberg News survey, was the worst since 2001, according to revised figures from the Commerce Department yesterday in Washington. Consumer spending fell the most in almost three decades.

A lack of credit, declining home prices and cutbacks in consumer and business spending are projected to lead to an even deeper slump in the final three months of this year. US President-elect Barack Obama and his economic team are working on a proposal for a stimulus package that could amount to about US$850 billion to limit the damage and salvage or create 3 million jobs.

"All incoming information points to a far worse outcome in the fourth quarter," Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts, said before the report. Gault projects the economy will shrink at about a 6 percent pace in the last three months of 2008.

Yesterday's GDP report is the last of three estimates. The median forecast was based on a survey of 65 economists by Bloomberg News. Estimates ranged from declines of 0.4 percent to 0.8 percent.

The economy expanded at a 2.8 percent pace from April through June. The government revised down measures of prices and corporate profits for last quarter with the report.