GDP Shrank 0.5% in 3rd Quarter

From Yahoo! Finance: GDP shrank in third quarter as economy chilled

The economy shrank at a 0.5 percent annual pace in the third quarter as expected after consumers and businesses cut spending and the country's recession gathered steam, government data showed on Tuesday, this versus the previous three months was the steepest since the 3rd quarter of 2001.

The U.S. economy entered a recession last December which deepened after the failure of U.S. investment bank Lehman Brothers in September, which froze credit and sent households and firms into a defensive crouch, and a really bad fourth quarter is expected.

Consumer spending shrank at a 3.8 percent pace for the sharpest pull-back since 1980, while investment in equipment and software slumped 7.5 percent for the largest decline since early 2002. Corporate profits fell 0.5 percent in the third quarter versus a previously reported 0.4 percent decline and forecasts for a 0.6 percent fall.

Residential investment contracted 16 percent at an annual pace in the third quarter, which was slightly less than previously estimated and subtracted 0.6 percentage points from overall growth.

"It continues to show basically the same story, which is people stopped spending," said David Wyss, chief economist at Standard & Poor's in New York.

Expenditures on durable goods fell 14.8 percent, subtracting 1.16 percent from growth. A large chunk of this fall was due to declining demand for motor vehicles, which reduced overall growth by 0.83 percent in the third quarter.