Economy Shrinks As Consumers Cut Back On Spending

The U.S. government today reported the economy shrank in the summer, the strongest signal yet that a recession may have already begun, a day after the Federal Reserve slashed a key interest rate to battle an economic downturn. The Commerce Department reported that the gross domestic product, the broadest measure of economic health, fell at an annual rate of 0.3% in the July-September period, a significant slowdown after growth of 2.8% in the prior quarter.

The spring activity had been boosted by the $168 billion economic stimulus program, but the economy ran into a wall in the summer as the mass mailings of stimulus checks ended and consumer confidence was shaken by the upheavals on global markets. Consumer spending, which accounts for two-thirds of the U.S. economy, dropped by the largest amount in 28 years in the third quarter.

The classic definition of a recession is two consecutive quarters of negative GDP. Many analysts believe the GDP will decline in the current October-December period by an even larger amount and they are forecasting a negative GDP figure in the first three months of next year. The National Bureau of Economic Research, which is the official arbiter of recessions in this country, has not said when it will make its determination of whether the country has entered a recession.