Bad news was no news to the battered U.S. economy Tuesday. The government released a triple dose of discouraging data: The economy shrank...
WASHINGTON — Bad news was no news to the battered U.S. economy Tuesday.
The government released a triple dose of discouraging data: The economy shrank over the summer even more than previously believed, and consumers reduced their spending by the largest amount in 28 years.
During the same period, home prices fell to levels of several years ago.
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“Consumers and businesses were like deer in the headlights … frozen,” said economist Ken Mayland, president of ClearView Economics.
Most of the numbers were updates of previously released figures, and the revisions indicated economic conditions were growing worse.
But Wall Street barely flinched. The Dow Jones industrials closed up 36 points after investors were heartened by government plans to aid consumer lending.
It was the stock market’s third straight day of gains, after a rally in which the major indexes soared more than 11 percent.
The updated reading on the economy’s performance from the Commerce Department showed the gross domestic product (GDP) shrank at a 0.5 percent annual rate in the July-September quarter.
That was weaker than the 0.3 percent rate of decline estimated a month ago, and it marked the worst showing since the economy contracted at a 1.4 percent pace in the third quarter of 2001, when terrorists attacked the U.S. and the nation had its last recession.
GDP measures the value of all goods and services produced within the U.S. and is considered the best barometer of the country’s economic fitness.
The new figure underscored how quickly the economy deteriorated as the housing and credit crisis intensified. The economy logged growth of 2.8 percent in the second quarter.
White House press secretary Dana Perino called the lower GDP figure “troubling” and said $800 billion in new government efforts announced Tuesday should help spur more consumer spending by expanding the availability of loans and credit cards at cheaper rates.
Meanwhile, the Federal Deposit Insurance Corp. (FDIC) said the list of banks it considers to be in trouble shot up nearly 50 percent to 171 during the third quarter.
The FDIC also said commercial banks and savings institutions saw a 94 percent drop in third-quarter profit to $1.7 billion. Except for the fourth quarter of 2007, it was the lowest profit since the fourth quarter of 1990.
The FDIC does not reveal the institutions on its “troubled” list, but on average, about 13 percent of them end up failing.
Nine banks failed in the third quarter, reducing the FDIC’s deposit-insurance fund to $34.6 billion from $45.2 billion in the second quarter. Both figures are below the target minimum level set by Congress.
Twenty-two banks have failed so far this year compared with three for all of 2007, and more failures are expected.
Elsewhere, the New York-based Conference Board said its Consumer Confidence Index for November rose to 44.9, from a revised 38.8 in October.
Last month’s reading was the lowest since the research group started tracking the index in 1967, and Americans’ views on the economy remain the gloomiest in decades as they grapple with massive layoffs, slumping home prices and dwindling retirement funds.
The new, lower third-quarter GDP reading matched economists’ forecasts. The downgrade mostly reflected an even sharper cutback in spending by consumers and slower sales growth of U.S. exports.
Consumers — the lifeblood of the economy — slashed spending in the third quarter at a 3.7 percent pace. That was deeper than the 3.1 percent cut initially reported and marked the biggest reduction since the second quarter of 1980, when the country was in the grip of recession.
Consumers have grown nervous about spending because of job losses, declining investment portfolios and sinking home values.
Underscoring the strain, the report showed that disposable income fell at an annual rate of 9.2 percent in the third quarter, the largest quarterly drop on records dating back to 1947.
The government’s initial estimate had showed a record 8.7 percent decline in disposable income for the quarter.