U.S. shrinks 0.5 pct in third quarter

U.S. shrinks 0.5 pct in third quarter
.hurriyet2008-detailbox-newslink { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:none; color:#000000;}.hurriyet2008-detailbox-newslink:hover { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:underline; color:#990000;}WASHINGTON - The U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades.

Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department yesterday in Washington. The government’s advance estimate issued last month showed a 0.3 percent decline.

The world's largest economy has sunk into an even deeper recession this quarter as the credit crunch, the worsening housing market, and mounting job losses cause consumers and businesses to retrench. "We?ve got a big downdraft coming on," John Silvia, chief economist at Wachovia, said before the report. "The recession is certainly looking longer and deeper. It’s just getting very tough for consumers."

Yesterday’s GDP report is the second of three estimates. The figures matched the median estimate of 71 economists surveyed by Bloomberg News. Forecasts ranged from declines of 0.1 percent to 0.9 percent. The economy grew at a 2.8 percent pace in the previous three months.

Corporate profits, including estimates for the value of inventories and adjustments for capital investments, dropped 0.9 percent from the previous three months, hurt by $46.2 billion in insurance payments and losses caused by Hurricane Ike. It was the seventh decline in the last eight quarters.

Weakening spending
Consumer spending, which accounts for more than two-thirds of the economy, dropped at a revised 3.7 percent annual rate, more than the 3.1 percent decrease estimated by the government last month. It was the first decline since 1991 and the biggest since 1980, after President Jimmy Carter imposed credit controls.

Americans may pull back further after employers fired 240,000 workers in October and the unemployment rate jumped to the highest level since 1994.

Wage figures showed a smaller gain than previously estimated in the second quarter, reflecting the weakening job market. Salaries grew $13.3 billion in the second quarter, $37.3 billion less than Commerce's earlier forecast.

Companies cut inventories at a slower pace than previously estimated, indicating more production cuts may be on the way as spending weakens.