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US recession likely to be deepening
The US recession probably deepened as consumer spending plunged in October by the most since the 2001 downturn and businesses slashed investment, government reports may show this week.
- Bloomberg
- Published: 00:04 November 24, 2008
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Washington: The US recession probably deepened as consumer spending plunged in October by the most since the 2001 downturn and businesses slashed investment, government reports may show this week.
Purchases declined one per cent after a 0.3 per cent drop the prior month, according to the median estimate of economists surveyed by Bloomberg News ahead of Commerce Department figures due on November 26. Commerce may also report the same day that orders for long-lasting goods fell for the second time in three months.
The credit crisis has forced cash-strapped consumers to pull back on purchases and companies to cut spending and step up firings. Housing and manufacturing also are deteriorating, a sign the economy is sinking further into what may be the most severe slump in decades.
"The economic indicators are all in the same vein, pointing to a deepening recession," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "Everything is contracting. The economy will stay in a recession for at least six months."
The Commerce Department's spending report may also show that incomes rose 0.1 per cent in October, the smallest gain in three months, according to the Bloomberg survey.
Durables
The projected decline in spending, which accounts for two- thirds of the economy, foreshadows a holiday season that may be the worst in six years, according to industry projections. A record two-decade expansion in consumer spending ended in the third quarter, causing the economy to contract.
Inflation figures in Commerce's spending report may show price pressures have waned, giving way to the risk of deflation, or a prolonged slide in prices. The Federal Reserve's preferred gauge of inflation, which excludes food and energy costs, was unchanged in October after rising 0.2 per cent in September.
Orders for durable goods, products meant to last several years, likely fell 3 per cent in October following a 0.9 per cent increase the prior month, economists in the Bloom-berg survey predicted. Excluding transportation equipment, orders probably fell 1.5 per cent, the November 26 report may show.
Automakers are aggravating the slump in durables. Sales of cars and light trucks last month were the worst since February 1983, according to industry figures from Autodata Corp.
The economy already was on a much weaker footing in the third quarter, revised figures from Commerce may show on Nov-ember 25. Gross domestic product likely shrank at a 0.5 per cent annual rate from July to September, more than the advance estimate of a 0.3 per cent contraction and the biggest slump since the 2001 recession, according to the survey median.
The housing downturn will probably extend into a fourth year as buyers find it difficult to get mortgage loans.
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