U.S. Economy GDP Contracts by 0.5% in Third Quarter

By: Money_Morning

Mike Caggeso writes: The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year.

Dana Saporta, an economist at Dresdner Kleinwort in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter.

“Some of the factors that led to negative growth in the third quarter ,” Saporta said. “We have negative growth factored into our forecast through the first half” of 2009.

According to Commerce Department figures, consumer spending fwill be amplified this quarter ell 3.8% in the third quarter, a sharp contrast from the 1.2% increase in the second quarter – marking the biggest drop in 30 years.

Residential fixed investment, the gross domestic product (GDP) component that includes spending on housing, dropped by 16.0% in the third quarter after falling 13.3% in the second quarter.

Real nonresidential fixed investment decreased 1.7%, in contrast to an increase of 2.5% in the second.

Fresh statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997. And the national medium home price fell 13.2% from last year to $181,300, the largest drop since the NAR started tracking statistics, and likely the largest decline since the Great Depression, said Lawrence Yun, the trade group's chief economist.

“ Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets,” Yun said in a news release. “More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages.”

By Mike Caggeso
Associate Editor

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.