U.S. gross domestic product shrank by 0.3 percent in the third
quarter, the Commerce Department announced this morning, the
first time it contracted since the quarter that included the
Sept. 11 attacks seven years ago. It was a lower
than expected decline, but I found this particularly
troubling, from the Reuters account:
Consumer spending, which fuels two-thirds of U.S. economic
growth, fell at a 3.1 percent rate in the third quarter -- the
first cut in quarterly spending since the closing quarter of
1991 and the biggest since the second quarter of 1980. Spending
on nondurable goods -- items like food and paper products --
dropped at the sharpest rate since late 1950.
The economic boom that we enjoyed for most of the Bush years was
fueled in large part by the housing market, both because those
who saw their houses rise in value felt richer and were more
willing to spend money and because low interest rates allowed
many Americans to refinance their mortgages and spend the money
they saved paying off their mortgages. Now the reverse is taking
place, and I think we're in the early stages of the economic
decline, with the rest of the economy not yet having absorbed all
of the tumult on Wall Street. At this point, we're still a long
way to go from a depression, during which you're looking at
double digit contraction of the GDP.
As for the presidential race, I noted at the beginning of the
month that we should all beware
of the GDP bomb set to go off less than a week before the
election. That is why, for all my criticism of McCain in the past
few months, I'm willing to acknowledge that the campaign was
largely taken over by events that were beyond his control.
There's not much precedent for the incumbent party winning a
third straight presidential term in the early stages of an
economic contraction.
