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Economy Contracts

Tim Iacono reports on the latest GDP numbers:  

Economy contracts, spending turns negative

Courtesy of Tim Iacono, at The Mess That Greenspan Made

The Commerce Department reported that real gross domestic product fell at an annualized rate of 0.3 percent in the third quarter, driven by a sharp slowdown in consumer spending.
The broadest measure of economic activity in the U.S. was down significantly from a second quarter growth rate of 2.8 percent and real growth has been negative in two of the last four quarters.

Overall economic growth during the last year remains positive at 0.8 percent, however, this was aided by the $150+ billion economic stimulus plan earlier in the year.

Consumer confidence has recently fallen to record lows and this is evident in the personal consumption component which posted its first decline since 1990 and its biggest decline in 28 years, dropping at an annualized rate of 3.1 percent.

Bloomberg reported spending on non-durable goods, items such as food and clothing, fell at an annualized rate of 6.4 percent, the sharpest decline since 1950.

As shown below, it was the decline in consumer spending that drove overall growth into negative territory during the third quarter as government spending and net exports both made large positive contributions and private investment was only slightly negative.


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Note that this is the "advance" estimate for GDP, the first of three readings for the third quarter, to be followed by the "preliminary" estimate next month and the "final" estimate in December. There are often large revisions between the "advance" and "preliminary" readings as incoming data replace sometimes unreliable proxies for some components.

While the news for the third quarter was bad, the fourth quarter is shaping up to be much worse with initial estimates for economic growth between minus 2 and minus 4 percent with a further slowdown in consumer spending expected.

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