Scared and out of money, Americans stopped buying everything from cars to cornflakes in the July-September quarter, ratcheting back spending by the largest amount in 28 years and jolting the economy into what could be the most painful recession in decades.

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Scared and out of money, Americans stopped buying everything from cars to cornflakes in the July-September quarter, ratcheting back spending by the largest amount in 28 years and jolting the economy into what could be the most painful recession in decades.

With retailers bracing for a grim holiday season, the economy isn’t just slowing; it’s actually shrinking, the government confirmed Thursday.

The Commerce Department reported the nation’s gross domestic product, or GDP, fell at an annual rate of 0.3 percent in the third quarter and consumers’ disposable income had its biggest drop on record.

Economists say tougher times are still ahead.

Believing consumers are cutting back even more, they predict a much larger economic decline — anywhere from a 1 to 2 percent rate — during the October-December period.

That would meet a classic definition of a recession — two straight quarters of shrinking GDP.

The GDP is essentially the nation’s economic report card, measuring the market value of everything produced by labor, plants and properties in the U.S. — a total of $14.4 trillion for the third quarter, according to the Commerce Department’s Bureau of Economic Analysis.

GDP’s growth or decline has become shorthand for whether the economy is healthy or faltering. It’s crucial to setting monetary policy, such as short-term interest rates, as well as determining whether we’ve fallen into a recession.

Here are some questions and answers about how the GDP comes together.

Q. What’s included in GDP?

A. All domestic consumer and government purchases, private domestic investments and the net of everything we export minus everything we import.

(Since we import more than we export, our “net export of goods and services” is a negative number, subtracted from the total. In the third quarter, that figure was negative $706.7 billion.)

Your taxes and tuition payments, grocery, utility and medical bills, bus fare, movie tickets, mortgage or rent, car payments and gasoline should all be included. Pay your housekeeper off the books? That should be there, too, in an estimate under “services.”

Also included is every penny the government spends domestically, whether a Florida town council buys notepads or the Air Force orders U.S.-made fighter jets.

The calculations also attempt to quantify economic disruptions. In the third quarter, that meant estimating the decline in manufacturers’ shipments of aircraft during the Machinists strike at Boeing and the income that restaurants, hotels and other businesses missed because of damage from Hurricane Ike.

Once the Bureau of Economic Analysis gathers the disparate elements of GDP, it calculates the percentage growth (or decline) in the economy. Then it subtracts the rate of inflation, stripping out the appearance of growth that higher prices could create.

Q. What are the largest components of GDP?

A. The largest is personal spending, which accounts for roughly two-thirds of GDP. Third-quarter GDP tumbled because consumer spending showed the largest drop in 28 years.

The next largest is government spending, which accounts for about 20 percent of GDP; then private domestic investment, such as office construction.

Q. How important is GDP in determining whether we’re in a recession?

A. It’s the most important of many factors weighed by the National Bureau of Economic Research, a nonpartisan group of economists that is the nation’s official arbiter of recessions.

The group’s Business Cycle Dating Committee views GDP as “the single best measure of aggregate economic activity,” according to its most recent statement on its recession-dating procedure, released in October 2003.

A common definition of a recession is two consecutive quarters of declining GDP, but the committee weighs other factors, too, including changes in real income, employment, industrial production and both wholesale and retail sales.

The last official recession was from March 2001 to November 2001, a period when GDP did not decline for two consecutive quarters.

Q. After a quarter’s GDP is released, can it change?

A. Yes. Thursday’s number was, in essence, the first draft of the third quarter’s GDP. The Bureau of Economic Analysis puts together these “advance” estimates less than a month after the quarter closes — less time than a 10-branch bank has to file its quarterly statements.

The bureau totals data from July through September, but much of the September data in Thursday’s reading was estimated. Many categories also included preliminary August data that may later be revised.

Estimated categories include residential and nonresidential construction, changes in retailers’ inventories, net exports and net imports and state and local government’s new construction.

The next third-quarter reading will come in late November with the release of “preliminary” GDP, which is calculated when more detailed and comprehensive data are available. On average, the change from the advance reading to the preliminary reading is plus or minus half a percentage point.

“Final” estimates are released three months after a quarter has ended. The average change from the advance reading to the final estimate is 0.6 percentage point.

The bureau does annual revisions each summer, using newly available data, which cover the quarters of the three most recent calendar years. Finally, the bureau does “benchmark” revisions at five-year intervals.

The annual and benchmark revisions are where the largest changes can take place.

The average change from the advance estimates is plus or minus 1.2 percentage points — enough to turn what appeared to be a quarter of minor growth into one of significant contraction, or a quarter of minor contraction into a quarter of serious decline.

Q. Where does all this data that’s used for the GDP come from?

A. Some of it is government data, such as inflation estimates. Some is publicly reported data, such as corporate profits. Some of it is estimated by the bureau until it gets better numbers.

For instance, the bureau estimates personal-income data, and for a good reason.

Thanks to privacy concerns and interagency tussles, it is illegal for the Internal Revenue Service to share personal-income data with the Bureau of Economic Analysis until that information is 3 years old.