WASHINGTON - The U.S. economy jolted into reverse during the third quarter as consumers cut back on their spending by the biggest amount in 28 years, the strongest signal yet the United States has hurtled into recession.
The broadest barometer of the country's economic health, gross domestic product, shrank at a 0.3 per cent annual rate in the July-September quarter, the Commerce Department reported Thursday. It marked the worst showing since the economy contracted at a 1.4 per cent pace in the third quarter of 2001, when it was suffering through its last recession.
The latest GDP reading marked a rapid loss of traction for the economy, which logged growth of 2.8 per cent in the second quarter, and is sure to buttress the belief of many economists that America is in the throes of a painful downturn.
"No question. We're definitely in a recession. That is just a reality," said Brian Bethune, economist at IHS Global Insight.
The White House tried to downplay the significance of the numbers, saying they were not unexpected and caused partly by special circumstances such as hurricanes and a Boeing Co. strike.
"While we continue to face serious challenges, the United States remains the best place to do business, and we're positioned to bounce back," White House press secretary Dana Perino said.
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 per cent pace in the third quarter, the most since the second quarter of 1980, when the country was in the grip of recession.
GDP measures the value of all goods and services produced within the United States and is the broadest barometer of the country's economic health.
While the third-quarter's contraction wasn't as deep as the 0.5 per cent annualized decline analysts expected, the poor showing underscored the terrible toll of the housing, credit and financial crises.
On Wall Street, however, the smaller-than-expected decline gave some comfort to investors. The Dow Jones industrials were up more than 140 points.
Meanwhile, the Labour 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.
The grim reports come just days before Americans pick their next president on Nov. 4. Whether Democrat Barack Obama or Republican John McCain wins the White House, the incoming president will inherit a deeply troubled economy and a record-high budget deficit that could cramp his domestic agenda.
Many economists believe the economy will continue to contract into next year, which would more than meet a classic definition of recession -- two straight quarters of shrinking GDP.
The National Bureau of Economic Research, the panel of experts that determines when U.S. recessions begin and end, uses a broader definition to determine recessions than two quarters of contracting GDP. That didn't happen in the last recession, in 2001. The NBER takes into account income, employment and other barometers. The finding is usually made well after the fact.
A collapse of the housing market and locked up lending have produced the worst financial crisis to hit the country in more than 70 years.
To cushion the fallout, the Fed slashed interest rates on Wednesday by half a percentage point to one per cent, a level seen only once before in the last half century.
Fed Chairman Ben Bernanke has warned that the country's economic weakness could last for some time -- even if the government's unprecedented US$700 billion financial bailout package and other steps do succeed in getting financial and credit markets to operate more normally.
