Economy shrinks at fastest pace in seven years

Lucia Mutikani
Reuters
November 25, 2008

The economy contracted at its fastest pace in seven years in the third quarter as consumer spending plunged to a 28-year low, data showed on Tuesday, raising the specter of a deeper recession.

Separate reports showed home prices continued their downward spiral, with the cost of single-family homes plunging to a record trough in September.

The data painted a dismal picture of the troubled economy and backed views the Federal Reserve could push benchmark lending rates to an unprecedented zero percent by early 2009.

“We are in the early stages of one of the worst recessions in the post-war period, even factoring in a massive stimulus program,’ said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

The grim reports overshadowed the Fed’s announcement that it would use up to $800 billion to buy mortgage-related debt and consumer debt securities, and stocks on Wall Street surrendered early gains. U.S. government debt prices rose, helped by a safe-haven bid fueled by the worsening outlook.

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