GDP drops in 3rd quarter, stoking worry about recession

The U.S. Commerce Department said Thursday that third quarter real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.3 percent, a sign that the country may be entering a recession.

In the second quarter real GDP rose 2.8 percent.

Most economists define two consecutive quarters of decline in the GDP as an indication of a recession.

Bureau of Economic Analysis said the decline primarily reflected negative contributions from personal consumption expenditures, residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending.

It noted that imports, which are a subtraction in the calculation of GDP, decreased.

The report follows Wednesday decision by the Federal Reserve Bank's Open Market Committee (FOMC) to lower its target for the federal funds rate by a half-percent to 1 percent.

The economic consulting firm Global Insight noted that the FOMC stated, the economic outlook had deteriorated due to a decline in consumer expenditures, while business equipment spending and industrial production have weakened.

Moreover, sharp slowdowns in overseas economies are expected to lead to a deceleration in the growth of U.S. exports, it said. Adding to these recessionary forces, the intensification of financial market turmoil is expected to exert additional restraint on spending, as credit conditions remain very tight. With the recent sharp drop in commodity prices, the FOMC expects inflation to moderate to levels consistent with price stability. In effect, the FOMC has removed inflation from the list of major risks to the outlook.