Released: October 31, 2008

In tightfisted turn, economy contracts

Source: Neil Irwin and Lori Montgomery, Washington Post (Free Registration)

Through recession, countless natural disasters and a major terrorist attack, there has been one constant in the U.S. economy: American consumers have bought more stuff in any given quarter than they did in the previous one.

Not anymore. Personal consumption expenditures fell at a 3.1 percent annual rate in the third quarter, the government said yesterday, the worst decline since 1980. The data show that even before the financial crisis deepened in October, American households were being walloped to a degree that has no recent precedent. Conditions, economists said, are almost certain to get worse before getting better.

“This is a major about-face in consumer spending,” said Robert A. Dye, a senior economist with PNC Financial Services Group. “It’s no surprise why. We’ve had a drop in the value of houses and stock portfolios, a very weak labor market and a tightening of credit.”

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