U.S. Economy Shrank 0.5% in Q3

Consumer spending fell at 3.7% pace, the steepest decline since 1980.

Revising down its earlier estimate for gross domestic product (GDP), the U.S.economy contracted at a 0.5% pace in the third quarter, the government said on Nov. 26.

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

The report reflected an abrupt turn from growth of 2.8% 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 much worse, reflecting a credit crunch and ongoing woes in housing and manufacturing.

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

That reflected a 15.2% 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%, even though that was slightly better than last month's estimate of a 19.1% 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% in the third quarter, and government expenditures and investment, up 13.6%.

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, an increase of 3.6% without adjustment for inflation.

Copyright Agence France-Presse, 2008

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