US Q3 GDP fell by 0.3%, signalling recession

30 October 2008 13:59  [Source: ICIS news]

US GDP fell into negative territory in third quarterWASHINGTON (ICIS news)--US gross domestic production (GDP) declined at an annual rate of 0.3% in the third quarter, the Commerce Department said on Thursday, as consumers and business cut spending and the housing downturn continued.

 

The 0.3% contraction in US economic output in the third quarter marked the first dip into negative growth since the downturn that followed the September 2001 terrorist attacks on the country.

 

The third-quarter decline was a sharp reversal from the relatively healthy second-quarter GDP gain of 2.8%.

 

Trend or normal growth for a healthy economy is judged to be around 3.0-3.5% on an annual basis.

 

The third-quarter decline in total US output of goods and services signals what may be the start of a recession that many economists believe has already started and will continue through the fourth quarter this year and into the first three months of 2009.

 

According to conventional economic theory, a recession occurs when GDP contracts for two successive calendar quarters.

 

The department said the third quarter fall in GDP was due chiefly to reductions in what government economists call personal consumption expenditures (PCE) or consumer spending, which fell 3.1% in the July-September period.

 

Business spending on such items as equipment and software fell 5.5% in the quarter.

 

In the housing sector - what the department calls residential fixed investment - there was a decline of 19.1% in the quarter.

 

Although US exports continued to grow in the third quarter, turning in a nearly 6% improvement compared with the second quarter, that growth rate was slower than earlier quarters and consequently made less of a contribution to the overall economy.

 

US exports saw a growth rate of 12.3% in the second quarter.

 

While down in the third quarter, US gross domestic product fell by less than the 0.5% that many economists had predicted.

 

However, the figures announced on Thursday reflect the department’s preliminary data. A more broadly based GDP measure of the third quarter’s economic activity will be issued on 25 November.

 

($1 = €0.78)

 

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By: Joe Kamalick
+1 713 525 2653



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