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December 24, 2008

Recession Deepens as U.S. Economy Shrank 0.5% in Third Quarter

By Mike Caggeso, Contributing Writer, Money Morning

By Mike Caggeso
Associate Editor
Money Morning

The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year.

Dana Saporta, an economist at Dresdner Kleinwort in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter.

“Some of the factors that led to negative growth in the third quarter will be amplified this quarter,” Saporta said. “We have negative growth factored into our forecast through the first half” of 2009.

According to Commerce Department figures, consumer spending fell 3.8% in the third quarter, a sharp contrast from the 1.2% increase in the second quarter – marking the biggest drop in 30 years.

Residential fixed investment, the gross domestic product (GDP) component that includes spending on housing, dropped by 16.0% in the third quarter after falling 13.3% in the second quarter.

Real nonresidential fixed investment decreased 1.7%, in contrast to an increase of 2.5% in the second.

Fresh statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997. And the national medium home price fell 13.2% from last year to $181,300, the largest drop since the NAR started tracking statistics, and likely the largest decline since the Great Depression, said Lawrence Yun, the trade group’s chief economist.

“Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets,” Yun said in a news release. “More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages.”

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Not a Positive Economic Picture (Financial Armageddon, 1/11/10)
The Worst Is Not Over (Financial Armageddon, 1/2/10)
Wall Street’s Greed: How to End Big Banks’ Grip on the U.S. Economy (Investment U, 1/27/10)
ARE HOUSING PRICES DOUBLE DIPPING? (THE PRAGMATIC CAPITALIST, 1/27/10)
Read more on U.S. Economic Cycles, , U.S. Housing Market at Wikinvest

4 Responses

  1. Jutia Group - Market Jitters & Political Critters | December 25, 2008

    [...] Mike Caggeso Money Morning addthis_pub = ‘jutiagroup’; addthis_logo = ‘http://www.jutiagroup.com/favicon.ico’; addthis_brand [...]

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  2. Jay Salvati | December 28, 2008

    Sadly, the worst is yet to come with mortgage ARMs and commercial real estate still to make their impact.

    I think we have all learned the lesson of a lifetime with this. Well, all except those on Wall Street who will come up with another deceitful tool to rob the hardworking men and women of this country.

    Reply
  3. U.S. Home Prices Post Record 18% Annual Drop in October | December 30, 2008

    [...] statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997, NAR reported last [...]

    Reply
  4. Financial Crisis Challenges Escalate as Republicans Announce Plans to Oppose $825 Billion Obama Stimulus | January 26, 2009

    [...] Money Morning News: Recession Deepens as U.S. Economy Shrank 0.5% in Third Quarter. [...]

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