U.S. economy retreated in Q3

The U.S. government confirmed Tuesday that the economy contracted by 0.5 per cent in the third quarter of the year, matching a forecast issued a month ago.

The third-quarter decline was the steepest since the same quarter of 2001, when the U.S. economy was staggering following the attacks of Sept. 11.

Amid job losses and housing sector turmoil, consumer spending for the July-September period of this year tumbled by 3.8 per cent, according to the U.S. Commerce Department. That marked the biggest drop since 1980.

Businesses also pulled in their spending, as investment in equipment and software fell by 7.5 per cent — the largest decline since 2002.

The U.S. government also reported that corporate profits fell by 1.2 per cent during the quarter, surpassing the drop of 0.9 per cent predicted a month ago.

Earlier this month, the U.S. National Bureau of Economic Research's business cycle dating committee said the U.S. economy hit a peak in December 2007 and has been in recession since that time. The NBER said the peak marked the end of an economic expansion in the U.S. that lasted 73 months.

Economists are expecting to see weaker numbers for the current October-December quarter and into 2009.

"The final estimate of the quarterly GDP growth often garners limited reaction within financial markets because, by the time the information is released, interest is more focused on the upcoming quarter," said Paul Ferley, assistant chief economist at RBC.

"This is definitely the case in the current environment where the modest decline in activity in Q3 is expected to be followed by a much more sizable Q4 decline, which we currently estimate at an annualized 6.1 per cent," Ferley said in a commentary.

Ferley said a huge stimulus package in the works by the incoming administration of U.S. president-elect Barack Obama will help to get the U.S. economy back into positive growth, but not until the second half of 2009.

Statistics Canada is to release gross domestic product figures for October on Wednesday.