US economic slide continues into third quarter
Despite suffering its biggest quarterly decline for a decade, and shrinking at its fastest pace since the last officially declared recession, the US economy nevertheless contracted less than many economists had feared during the third quarter.
In its quarterly bulletin issued last week, the US Commerce Department said the country’s Gross Domestic Product shrank at an annualised rate of 0.4 per cent in the quarter – much less than the 1% plus than many economists had been predicting. What still remains unclear, however, is whether the US will still be able to avoid recession, which is defined as two quarters of GDP contraction and generally characterised by an unrelenting spiral of falling production, employment, income and sales.
At the beginning of the year, it was hoped that recession might be avoided, but the odds were greatly reduced by the tragic events of September 11. The erosion of the economy in the third quarter now raises the possibility that the efforts of the Federal Reserve and other policymakers to steer the economy away from recession may have failed. The GDP report additionally records the sharpest drop in US exports and imports in nearly two decades, highlighting the risks posed to the wider world economy.
Also last week, levels of economic confidence took a further knock with the release of figures by the National Bureau of Economic Research. These depicted a further decline in consumer confidence, underscoring the view that consumer spending, which accounts for two-thirds of US economic activity, will eventually run out of steam, tipping the economy into a full blown recession. However, the bureau also said that while the decline of factory activity had been severe, the economic data overall were inconclusive. US income had not yet fallen whilst the drop in employment was, so far, less severe than in previous recessions.
Another positive sign was the sharp decline in inventories reported contained within the Commerce Department figures. This indicated that businesses had experienced some success in reducing their stockpiles which had hampered production and forced cutbacks in investments and jobs over the previous year.
