Although the last key piece of economic data before next week’s US presidential election was not as bad as expected, it highlighted the fall in activity between July and September – and the challenges facing the next administration reports the Financial Times.
Meanwhile, the Federal Reserve revealed that it purchased $144bn of commercial paper from banks and companies over the past week.
This aggressive effort appears to be succeeding in increasing the availability of funds for borrowers. Total commercial paper outstanding jumped $100.5bn for the week ending Wednesday. But that gain offsets less than a third of the $366bn contraction in the preceding six weeks after the collapse of Lehman Brothers.
Wider credit markets showed only gradual signs of improvement. Money market rates continue to edge lower, but remain far above their levels before Lehman failed.
Reserves on deposit at the Fed jumped 88 per cent in the week to $426bn, suggesting that banks are parking a large chunk of the liquidity generated by the Fed at the central bank rather than lending it themselves for periods of longer than one day.
Both presidential candidates seized on the growth figures – the weakest since 2001 – to bolster claims they are best placed to lead the US out of recession.
Barack Obama, the Democratic frontrunner, said the GDP decline was the “direct result of the Bush administration’s trickle down, Wall Street first, Main Street last policies”.
An adviser to Republican John McCain, said Mr Obama would “accelerate this dangerous course” the economy was on.
Economists had predicted an annualized decline of 0.5 per cent in the third quarter after the economy grew at 2.8 per cent in the second quarter. Some believe the economy could contract by more than 2 per cent on an annualized basis in the fourth quarter as the full impact of the financial crisis is felt.
Read it here: Consumer data raise recession fears in US