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Biggest economies in ‘storm of the century’

Belt-tightening by American consumers on a scale unprecedented for almost three decades meant the world’s biggest economy joined the list of countries in or close to recession, according to official figures released on Thursday.

The Commerce Department in Washington said both households and businesses were spending less in the three months ending in September.

Only military spending by the Pentagon, the boost to exports from the cheaper dollar and stock building by companies spared the U.S. from a more severe contraction in the third quarter.

Consumer spending fell at an annual rate of 3.1 per cent between July and September in response to the biggest squeeze on personal disposable incomes since the government began collecting quarterly data in 1947.

The Commerce Department said it was the sharpest cut in consumer spending since 1980, with an annualised drop of more than 14 per cent in durable goods such as cars and furniture. Governors of six states urged the U.S. Treasury and the Federal Reserve to take “immediate action” to prevent a deepening crisis for the car industry that would become “an unmanageable disaster” for state governments. America’s central bank cited the weakness of consumer demand when it cut interest rates to one per cent on Wednesday. Analysts said the U.S. was likely to fulfil the technical definition of recession — two consecutive quarters of falling GDP — in the final three months of 2008 and would continue to contract in 2009. — © Guardian Newspapers Limited, 2008

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