By Sandi Alexander
Washington, Oct. 31 (FWN) The U.S. economy for the third quarter declined 0.4%, the largest drop since the first quarter 1991 when it dropped 2.0%, the Commerce Department reported on Wednesday. Analysts predicted GDP would drop 0.9% this quarter.
* * * Consumer spending, responsible for two-thirds of economic output, rose 1.2% in the third quarter, while government spending increased 1.8%.
The Commerce Department indicated that the, "major contributors to the decrease in real GDP in the third quarter were exports, equipment and software, nonresidential structures, and private inventory investment. The negative contributions of these components were largely offset by positive contributions from personal consumption expenditures (PCE) and federal government spending." Capital spending, central to the economy in recent years due to, its productivity-boosting effects, was down 11.9% the third quarter. Final sales in the third quarter, which measures GDP excluding inventories, fell 0.3%.
Business spending on structures sunk 12.1% in the third quarter, and construction investment decreased 8.4%. Meanwhile, total inventories were down the third quarter, detracting 0.37 percentage points from growth, after subtracting 0.42 percentage points in the second quarter. Net exports decreased the third quarter, cutting 1.9 percentage points from third quarter GDP growth, following a deduction of 1.4 percentage points in the second quarter.

INFLATION
The report contained some fair news regarding inflation in the third quarter: The GDP price index was up 2.1%, the same as the second quarter final estimate.

The FWN survey of economists' estimates for GDP figure ranged from down 1.5% to down 0.5%. The final sales projections ranged from down 1.6% to down 1.2% with the consensus at down 1.5%. The PCE index was expected to gain 1.4% and the price deflator was pegged at up 1.7%.