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US GDP declines more than expected

Text by AFP

Latest update : 2008-12-08

The US Growth Domestic Product lost 0.5 % in the third quarter due to downward adjustments to consumer spending and exports. The Commerce Department had expected a loss of only 0.3%.

The US economy shrank at a 0.5 percent pace in the third quarter, the government said Tuesday in a revised estimate for gross domestic product that many analysts say is the start of a steep downturn.

Last month, the Commerce Department in its first estimate had pegged the downturn in GDP at 0.3 percent.

The latest revision was in line with forecasts by private economists and reflected downward adjustments to consumer spending, exports and government expenditures.

The report underscored an abrupt turn from growth of 2.8 percent in the second quarter, although analysts said that figure was skewed by a surge in exports and consumer spending boosted by one-time tax rebates.

Many economists say the downturn in the fourth quarter could be even uglier, reflecting a credit crunch and ongoing woes in housing and manufacturing.

"Everyone is waiting for the hammer blow that weak auto sales is delivering to fourth-quarter growth," said Robert Brusca at FAO Economics.

"A far faster pace of decline is certain in the fourth quarter, given the worsening credit conditions, sharp declines in household wealth and continued collapse in consumer spending," said Peter Kretzmer, senior economist at Bank of America.

"We expect a 4.0 to 5.0 percent annualized decline in GDP in the fourth quarter, as consumption declines accelerate, business investment deteriorates sharply and inventory trimming picks up."

The White House said that new figures were "troubling."

"The numbers are what they are, which is they're troubling. This is why we are having to take such bold actions which we are taking," White House spokeswoman Dana Perino told reporters aboard Air Force One.

The report comes amid fears of a horrific slowdown in global economic conditions that would reinforce any decline in the world's biggest, as a credit crisis stemming from massive losses in the US property market collapse dampens growth.

The latest revised report showed consumer spending -- which accounts for around 70 percent of US economic activity -- fell at 3.7 percent pace, the steepest decline since 1980. That compared with an earlier estimate of a 3.1 percent drop.

That reflected a 15.2 percent drop in so-called durable goods such as cars and appliances, expected to last three years or more, a critical element for the manufacturing sector. That was the sharpest fall since 1950.

The housing sector remained a big drag on the economy, with investment in property down 17.6 percent, even though that was slightly better than last month's estimate of a 19.1 percent drop.

The housing sector alone subtracted 0.66 percentage points from GDP, while consumer activity cost 2.69 points from growth.

The overall figure would have been weaker but for exports, which increased 3.4 percent in the third quarter, and government expenditures and investment, up 13.6 percent.

Businesses built up inventories as well, which added 0.89 percentage points to the third-quarter GDP.

The report estimated GDP -- the market value of the nation's output of goods and services -- at 14.4 trillion dollars, an increase of 3.6 percent without adjustment for inflation.

A separate report showed US consumer confidence bounced back in November from an all-time low a month earlier, but still reflects weak economic conditions.

The Conference Board said its index of consumer confidence rose in November to 44.9, up from 38.8 in October, which was the lowest on record.

The survey offered little hope for a quick improvement in the struggling economy.

"Despite the modest improvement in November, consumer confidence remained very weak," said John Ryding at RDQ Economics.

"Importantly, the jobs-related components of this survey corroborate the unemployment claims data in suggesting that the labor market has deteriorated further in November."

Date created : 2008-11-25