GDP Goes Negative, Down 0.3% in Third Quarter

We’ve been talking about recession for months now, but official economic growth as determined by gross domestic product has been positive all year.

The Commerce Department changed all of that Thursday when it reported that GDP contracted at an annual rate of 0.3 percent in the third quarter of 2008. This follows growth of 2.8 percent in the second quarter, 1 percent in the first quarter, and -0.2 percent in the fourth quarter of 2007.

Although the official negative GDP numbers were shocking to no one, the 0.3 percent contraction was a little better than what economists had predicted. MarketWatch’s poll of economists showed an anticipated contraction of 0.5 percent for the quarter.

Further, economists expect the economy to contract in the fourth quarter and the first quarter of 2009, with the nation’s unemployment rate pegged to rise near the 8 percent mark. It would be the longest contraction since World War II.

In the third quarter, consumer spending – or lack thereof – drove the contraction. Consumer spending fell 3.1 percent in the quarter, subtracting 2.3 percentage points from the GDP.