U.S. economy slipping off the brink
The U.S. economy contracted by one-half of one percentage point in the third quarter with consumer spending declining at the steepest pace in 28 years and business spending softening. Export growth slowed and the widespread weakening in global economic activity sets up for a further deterioration in the fourth quarter of this year.
With these conditions persisting early in the fourth quarter, we expect an even heftier decline in real GDP in that quarter.
The tightening in lending standards that is making borrowing more difficult and expensive is setting the stage for consumer and business spending to contract further. Consumers are also facing deteriorating balance sheets and growing job losses.
This would mark two consecutive quarters of declining activity, although the National Bureau of Economic Research (NBER) did not bother to wait and has already indicated that the U.S. recession commenced December of last year on the basis of weakening labour markets since the start of 2008.