- The Washington Times - Wednesday, November 26, 2008

Bad news was no news to the battered American economy Tuesday.

The government released a triple dose of discouraging data: The economy shrank over the summer even more than previously believed, and consumers reduced their spending by the largest amount in 28 years. During the same period, home prices fell to levels not seen since early 2004.

“Consumers and businesses were like deer in the headlights: frozen,” said economist Ken Mayland, president of ClearView Economics.

Most of the numbers were updates of previously released figures, and the revisions indicated that economic conditions were growing worse.

But Wall Street barely flinched and actually recorded its third straight day of gains, something that had not happened since the financial meltdown began almost 2 1/2 months ago. The Dow Jones industrials closed up 36 points, following a two-day rally in which the major indexes soared more than 11 percent.

The updated reading on the economy’s performance from the Commerce Department showed the gross domestic product (GDP) shrank at a 0.5 percent annual rate in the July-September quarter.

That was weaker than the 0.3 percent rate of decline first estimated a month ago, and it marked the worst showing since the economy contracted at a 1.4 percent pace in the third quarter of 2001, when terrorists attacked the U.S. and the nation was suffering through its last recession.

GDP measures the value of all goods and services produced within the U.S. and is considered the best barometer of the country’s economic fitness.

The new GDP figure matched economists’ expectations but underscored just how quickly the economy deteriorated as the housing and credit crisis intensified. The economy logged growth of 2.8 percent in the second quarter.

White House press secretary Dana Perino called the lower GDP figure “troubling” and said $800 billion in new government efforts announced Tuesday should help spur more consumer spending by expanding the availability of loans and credit cards at cheaper rates.

Elsewhere, the New York-based Conference Board said its Consumer Confidence Index for November rose to 44.9 from a revised 38.8 in October. Last month’s reading was the lowest since the research group started tracking the index in 1967, and Americans’ views on the economy remain the gloomiest in decades as they grapple with massive layoffs, slumping home prices and dwindling retirement funds.

The new, lower third-quarter GDP reading mostly reflected an even sharper cutback in spending by consumers and slower sales growth of U.S. exports.

American consumers — the lifeblood of the economy — slashed spending in the third quarter at a 3.7 percent pace. That was deeper than the 3.1 percent cut initially reported and marked the biggest reduction since the second quarter of 1980, when the country was in the grip of recession.

Underscoring the strain, the report showed that Americans’ disposable income fell at an annual rate of 9.2 percent in the third quarter, the largest quarterly drop on records dating back to 1947. The government’s initial estimate had indicated a record 8.7 percent decline in disposable income for the quarter.

Sales of U.S. exports grew at a 3.4 percent pace in the third quarter. That was lower than a 5.9 percent growth rate initially estimated and marked a sharp slowdown from the second quarter’s blistering 12.3 percent growth rate.

The deceleration reflects less demand from overseas buyers coping with their own economic problems.

Homebuilders slashed spending at a 17.6 percent pace, marking the 11th straight quarterly cut and fresh evidence of the depth of the housing slump.

The Standard & Poor’s/Case-Shiller U.S. National Home Price Index said that home prices tumbled a record 16.6 percent during the third quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide