U.S. Economy Shrinks 0.4 Percent

The economy, battered by a yearlong slowdown and the jolt of the terror attacks, shrank at a 0.4 percent rate from July through September, a decline that could signal the end to the longest economic expansion in U.S. history.

President Bush blamed the decline on a falloff in consumer confidence that he said could be expected given the devastating nature of the Sept. 11 terrorist attacks and events since then.

"After all, we're at war," Bush said.

The drop in the gross domestic product — the total output of goods and services produced in the country — was the biggest since the first quarter of 1991 when the country was in the depths of the last recession, the Commerce Department reported Wednesday.

The weak performance reflected a sharp pullback by consumers in spending, which slowed to the weakest pace in more than eight years, and a continued plunge in investment by businesses in new plants and equipment.

In a speech to business leaders, Bush said those results confirm that the terrorist attacks "really shocked our nation. People are having tough times in America."

"It's time for our government to act in a positive and constructive way," Bush said. He urged Congress to pass an economic stimulus package "and get it to my desk before the end of November."

Traditionally, a recession is defined as two consecutive quarters of declining GDP. However, the actual dating of a downturn is done by the National Bureau of Economic Research and is based on a number of economic indicators turning negative in addition to the GDP. Many analysts think the country had entered into a recession even before the Sept. 11 attacks, and that when the NBER gets around to establishing the official date it will mark the downturn as beginning last April or May.

The concern now is that shock from the Sept. 11 attacks and the resulting disruptions to the nation's airlines and tourism industries compounded by new concerns over anthrax scares will further depress economic activity.

Many analysts think the 0.4 percent drop in GDP will be followed by an even sharper decline of 1 percent or more in the current October-December quarter.

The worry is that the downturn could feed on itself as consumers cut back further on their spending, which accounts for two-thirds of overall economic activity, and further depress business production, adding to the thousands of layoffs that have already been announced.

Bush has repeatedly urged Americans to keep the attacks from disrupting their normal activities. But this message has been diluted by government warnings to the country to be prepared for further terror attacks. Consumer confidence plunged to a 7-year low in October.

The Bush administration is urging Congress to quickly pass an economic stimulus package of $60 billion to $75 billion. However, the measure has become entangled in partisan wrangling between House Republicans and Senate Democrats.

White House spokesman Ari Fleischer said Wednesday's figures offered "compelling" evidence of the need for an economic stimulus package. "The president believes it is imperative for the Senate to act," Fleischer said.

The Federal Reserve has cut interest rates nine times this year, with two reductions coming after the attacks. Many economists are looking for another cut when the Fed meets next on Nov. 6.

Many analysts think that will provide enough lift to get the economy growing again next year. But others say that the unprecedented terror threats to the country make it difficult to forecast when a rebound will occur.

The Fed has room to lower rates further because the weak economy has kept a lid on inflation. An inflation gauge tied to the GDP fell at an annual rate of 0.4 percent in the third quarter, the first decline in four decades.

The third-quarter performance followed a barely perceptible 0.3 percent growth rate in the second quarter, a figure that underscored how weak the economy was even before the attacks.

Business investment in new plants and equipment, which has been severely depressed for a year, fell at an annual rate of 11.9 percent in the third quarter, following a 14.6 percent rate of decline. Since the stocks of high-tech companies began plunging, these firms have been scrambling to reduce their spending.

Consumer spending, which had been keeping the economy afloat, rose at a rate of 1.2 percent in the third quarter, a further slowdown from the 2.5 percent increase in the second quarter and the poorest showing since a 0.8 percent increase in the first quarter of 1993.

The 0.4 percent decline in GDP in the third quarter was the biggest drop since a 2 percent plunge in the first quarter of 1991 when the country hit bottom in the 1990-1991 recession.