WASHINGTON – The government reported Thursday the economy shrank in the summer, the strongest signal yet that a recession may have already begun, a day after the Federal Reserve slashed a key interest rate to battle an economic downturn.

The Commerce Department reported that the gross domestic product, the broadest measure of economic health, fell at an annual rate of 0.3 percent in the July-September period, a significant slowdown after growth of 2.8 percent in the prior quarter.

AP – A man passes by an ice sculpture entitled Main Street Meltdown, in New York

AP – A man passes by an ice sculpture entitled Main Street Meltdown, in New York

The spring activity had been boosted by the $168 billion economic stimulus program, but the economy ran into a wall in the summer as the mass mailings of stimulus checks ended and consumer confidence was shaken by the upheavals on global markets. Consumer spending, which accounts for two-thirds of the economy, dropped by the largest amount in 28 years in the third quarter.

The classic definition of a recession is two consecutive quarters of negative GDP. Many analysts believe the GDP will decline in the current October-December period by an even larger amount and they are forecasting a negative GDP figure in the first three months of next year.

The National Bureau of Economic Research, which is the official arbiter of recessions in this country, has not said when it will make its determination of whether the country has entered a recession.

Meanwhile, the Labor Department reported Thursday that applications for unemployment benefits remained at an elevated level last week, another sign of the economy’s struggles. The number of laid-off workers filing new claims totaled 479,000, the same as the previous week, disappointing analysts who had expected a small drop. […]

Source: AP

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