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US economy on verge of recession

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by Kay Mitchell

The world’s largest economy is officially on the verge of recession after figures from the Commerce Department show that the economy shrank at an annual rate of 0.3% in the three months to September. The fall follows growth of 2.8% in the previous quarter.

Meanwhile, consumer spending, which accounts for about 70% of the US economy, shrank by 3.1%, the first contraction in 17 years.

While the gross domestic product (GDP) figures were better than analysts expectations, they show the sharpest contraction of the economy since the aftermath of the 9/11 terrorist attacks in 2001.

The GDP figures showed that spending on items such as food and paper, declined at the fastest rate since 1950.

The figures suggest that the US economy is halfway towards a recession. A country is considered to be in recession when it experiences two consecutive quarters of declining economic output.

However, it is different in the US as the economy is never officially in recession until the National Bureau of Economic Research deems it to be.

Yesterday, the US Federal Reserve cut interest rates 0.5% to 1%, in response to the sharp deterioration business conditions.

The figures from the Commerce Department were announced as the Labor Department revealed that there were 479,000 new claims for jobless benefits last week, which was the same the previous week, indicating that the economic problems are filtering through to the job market.

Despite the doom and gloom, the Dow Jones gained in early trading today by 204 points to 9,195.58.

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News posted: October 30, 2008

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