Recession probably deepened in October  - U.S. economy preview

Business Materials 25 November 2008 05:41 (UTC +04:00)

The U.S. 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, TehranTimes reported.

Purchases declined one percent after a 0.3 percent drop the prior month, according to the median estimate of economists surveyed by Bloomberg News ahead of Commerce Department figures due Nov. 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 percent in October, the smallest gain in three months, according to the Bloomberg survey.

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 percent in September.

Orders for durable goods, products meant to last several years, likely fell 3 percent in October following a 0.9 percent increase the prior month, economists in the Bloomberg survey predicted. Excluding transportation equipment, orders probably fell 1.5 percent, the Nov. 26 report may show.

The economy already was on a much weaker footing in the third quarter, revised figures from Commerce may show on Nov. 25. Gross domestic product likely shrank at a 0.5 percent annual rate from July to September, more than the advance estimate of a 0.3 percent 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. S&P/Case-Shiller may report on Nov. 25 that an index of home prices in 20 U.S. cities slumped in September at the fastest pace on record, the survey median shows.

New-home sales, due from Commerce on Nov. 26, plunged in October to the lowest level in 17 years, according to the median forecast in the Bloomberg survey. Two days earlier, the National Association of Realtors may report that home re-sales dropped last month by the most since September 2007.

In other figures, the Institute for Supply Management-Chicago may report business activity in November stayed near the lowest level since the 2001 recession, and Reuters/University of Michigan may report consumer confidence this month held near a 28-year low, according to economists' median forecasts.