GDP, consumer spending contract as US plunges into recession

Gross domestic product (GDP) figures released yesterday by the Commerce Department show that the US economy shrank by 0.3 percent on an annualised basis in the three months from July to September. With economists expecting even poorer GDP figures for the fourth quarter, the latest data confirms that the economy has now entered into severe recession.

Negative GDP growth for the third quarter was driven by a 3.1 percent decline in consumer spending, the first such contraction since 1991 and the largest fall recorded since 1980.

Consumer spending, partly fuelled by personal debt, has accounted for more than two-thirds of all economic activity in the last period. But mounting layoffs, home foreclosures, credit card defaults, the rising cost of living and the declining value of retirement savings have had a devastating impact on broad layers of the population. The Commerce Department reported an extraordinary 8.7 percent third quarter decline in disposable personal income—that is, income after taxes and adjusted for inflation. This is the largest fall ever recorded since figures were first kept in 1947.