Slack Consumer Spending Slows GDP in Q3

Washington, DC, Nov. 25, 2008--The U.S. economy contracted at a slightly faster pace in the third quarter than initially estimated, government data showed Tuesday.

The economy contracted at a real annual rate of 0.5% in the third quarter, not at the 0.3% rate reported last month, the Commerce Department said Tuesday.

Economists had expected a revision in GDP down to negative 0.6%.

Real gross domestic product has grown 2% over the past four quarters.
 
Economists have said they believe the weakness in the July-through-September quarter is a harbinger of further weakness ahead. Growth in the current quarter is on track to fall at a 4% annual rate.
 
As with the initial estimate, the story behind the weakness in the third quarter was all about the sudden drop-off in consumer spending.

The main source of the revisions was less spending by American households than first estimated.

Consumer spending subtracted 2.7 percentage points versus third-quarter growth.

Spending on durable goods decreased 3.7%, while spending on nondurable goods fell 15.2% and spending on services fell 6.9%.
 
Investments in homes and businesses also declined in the third quarter. Business investments dropped 5.6%, unrevised from the initial estimate.

Residential investment fell at a 5.7% rate in the third quarter, revised down from a 5.5% drop.