Breaking News on MSNBC. The definition of a recession is two consecutive quarters of negative growth, so if current forecasts are fulfilled for the fourth quarter the U.S. economy will officially be in a recession. The fall in GDP also represents a dramatic change from the growth experimented in the second quarter (GDP rose by 2.8 percent). The drop is directly related to the fall in consumer spending I reported in a previous diary. And this drop is directly related to the fall in consumer confidence caused by the financial crisis. A change in leadership in Washington would go a long way in alleviating the poor consumer outlook of the economy, and so would foster spending and alleviate or altogether stop the incoming recession.
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Bloomberg reports:
The economy suffered its biggest decline since 2001 in the third quarter, ushering in what may be worst recession in a quarter century and boosting the chances of Barack Obama and his fellow Democrats in next week's elections.
Gross domestic product contracted at a 0.3 percent annual pace, less than forecast, a Commerce Department report showed today in Washington. The last major economic data before the election also showed that a record two-decade consumer spending boom ended last quarter as the credit crunch deepened.
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The Wall Street Journal writes:
The U.S. economy, weakened by the worst consumer spending in 28 years, contracted last summer, beginning a slump that some fear could turn into a deep recession.
The number marked the weakest GDP figure since a 1.4% decline in third-quarter 2001.
Despite the third-quarter drop in GDP, inflation gauges surged. For instance, the price index for personal consumption expenditures rose by 5.4% after increasing 4.3% in the second quarter. The 5.4% increase was the largest since 6.0% in first-quarter 1990. The PCE price gauge excluding food and energy also accelerated, rising 2.9% versus an increase of 2.2% in the second quarter. Economists say the weak economy will damp inflation pressures eventually.
The increase in prices complicates the task of the Fed, since lowering interest rates to incentivate the economy might potentially push inflation up.
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The International Herald Tribune also traces the fall in GDP to the fall in consumer spending:
The deterioration reflected a sharp retrenchment by consumers, whose spending accounts for the largest chunk of national economic activity. Consumers ratcheted back their spending at a 3.1 percent pace in the third quarter, the most since the second quarter of 1980, when the country was in the grip of recession.
And adds a further troubling sign for the economy:
Meanwhile, the Labor Department said Thursday that new claims for jobless benefits for the week ending Oct. 25 stood at a seasonally adjusted 479,000, the same as the previous week and above analysts' estimates of 475,000. Jobless claims above 400,000 are considered a sign of a struggling economy.