The Real Economy: Getting Worse

The U.S. economy shrank during the third quarter of 2008—its first economic contraction in 28 years. The Commerce Department reported yesterday (October 30) that America’s Gross Domestic Product has declined, pushed down by a 3.1 percent drop in consumer spending over the summer. The decline was driven primarily by a 14 percent decrease in purchases of “durable goods” such as cars, sales of which fell more than 25 percent. [U.S. Department of Commerce [2]]

Without intervention, the U.S. will continue sliding into the worst recession in a generation. Key economic indicators suggest that the current recession is already as severe as the post-September 11th recession in 2001, and may even be worse than the recession of the early 1990s. GDP growth has slowed to 2001 levels, and inflation-adjusted personal spending has fallen for the first time since the 1991 recession. [Bureau of Economic Analysis [3], New York Times [4]] Based on current trends, economists predict that consumer spending will decline as steeply as it did in 1990. [Economic Policy Institute [5]]

American savings and investments have been tanking. Our nation’s personal savings rate is now at its lowest point since the Great Depression. [Bureau of Economic Analysis [6]] The average debt for students graduating college now exceeds $19,000. [U.S. Department of Education [7]] Last year, total household debt was at its highest level ever recorded. [Economic Policy Institute [8]]

Home prices are free-falling. Home prices have fallen by 16.6 percent in the past 12 months, bringing the total decline in price since their June 2006 peak to 20.3 percent, according to a study released on October 27. [Market Watch [9]]

Retirement accounts have been decimated. Americans’ retirement accounts and pension funds have lost an estimated $3.9 trillion over the last 12 months, or about 18 percent of their value. [U.S. News [10], Urban Institute [11]] The more affluent have been hit by the stock market’s loss of nearly a third of its value during the past year. Since September 2007, the value of the stock market has plummeted by $7 trillion. [Urban Institute [11]]

Consumer confidence has hit an all-time low. The Conference Board reported on October 28 that the Consumer Confidence Index, which had improved slightly in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September. [Conference Board [12]] ABC News’ “Consumer Comfort Index” has fallen 37 points since October 2007, with consumers now rating their comfort with current economic conditions at -49 on a scale of -100 to +100. [ABC News [13]]

State revenues have plummeted. Thirty-nine states are now facing budget shortfalls totaling more than $12 billion. As consumer spending and wages drop, state sales tax and personal income tax revenues are falling as well, forcing many states to consider cutting spending on schools and health care programs. [Center for Budget and Policy Priorities [14]]