US economy on the decline

US output of goods and services shrank at a 0.3% annual rate during the July-September period, as consumers slowed spending. The figure for the nation's gross domestic product was the worst since the 2001 downturn, according to the Commerce Department. Consumer spending, which makes up more than 70% of total economic activity, fell at a 3.1% annual rate in the quarter, the first drop in 17 years and the sharpest decline since 1980.

The figures indicate that the steep downturn which may be labeled a recession later on by the group of economists that makes such calls probably began well before September, when carnage at financial firms spurred a freeze in lending. In coming months, as tighter borrowing terms and higher rates work through the system, employers are expected to slash jobs and consumers are likely to pare spending even more.

Economists expect output in the current quarter to decline more than 3% and continue contracting in the first three months of next year. The unemployment rate, now 6.1%, is likely to top 7% in the coming months and several forecasts show it hitting 8% by the end of next year. The downturn is bad news for nations around the globe that depend on the U.S. market for their exports and on U.S. financial companies for lending.