WASHINGTON - In the most compelling proof yet that the U.S. economy is in recession, the Commerce Department reported yesterday that economic growth contracted by 0.3 percent during the third quarter of this year and personal consumption fell by the greatest rate in almost three decades.
Personal consumption fell at a 3.1 percent annual rate in the third quarter, the worst showing since the recession of 1991. That was the lowest quarterly contraction in consumption since the 8.6 percent shrinkage during the second quarter of 1980.
Moody's Economy.com said yesterday that 30 U.S. states and 276 metropolitan areas were now in recession.
"Alaska and the District of Columbia are the only states expanding. What started in housing has now [become a] more broad-based slowdown: Financial market turmoil is weighing on businesses' ability to finance operations, and weak domestic demand and near recession-like conditions globally have brought the economy to its knees," the Moody's Economy.com report said. Moody's is a leading economic research firm based in West Chester, Pa.
Yesterday's numbers and other recent economic data reveal how the U.S. economy is in a vicious downward spiral.
Fewer employed consumers and eroding job security are likely to keep consumption unusually low. That will complicate efforts by the Treasury and Federal Reserve to shore up the troubled banking sector. The government passed a $700 billion rescue package early this month that's designed to boost bank balance sheets and free them up to lend more.
However, banks aren't eager to increase loans amid rising unemployment and an economy that's now thought to be in recession. Lending to consumers in a recession invites higher defaults on car loans, credit card debt and mortgages. All three show rising default rates.
"We never like to see a negative number, and we were expecting a difficult quarter and that's what we're looking at," Commerce Secretary Carlos Gutierrez said in an interview. Gutierrez said he expected the weak economic data to fuel further calls for a second economic-stimulus plan such as the Democrats who control Congress are discussing.
Gutierrez warned, however, that many of the public works projects that are being touted as ways to stimulate the economy won't provide immediate relief.
"We believe if you are going to call something a stimulus package ... it should be something that has immediate impact on the economy," he said.
The third-quarter economic decline followed a second quarter in which the economy grew by 2.8 percent.