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Wednesday, 31 October, 2001, 22:07 GMT
US economy shrinks
US factory worker
Output from US factories has fallen in recent months
US President George W Bush has urged Congress to take swift action on measures to revive the country's economy, after data revealed output had shrunk for the first time in eight years.

US economic output, or GDP, fell by 0.4% in the three months from July to September, the Commerce Department said.

The statistics are being viewed as the first official indication that recession is on the way for the world's largest economy, after a record spell of economic expansion.


It was much less of a decline than everyone expected.

Stephen Stanley, Greenwich Capital Markets
Recession is commonly defined as two consecutive quarters of negative economic growth.

'Really shocked'

Mr Bush said the data showed that the 11 September strikes had "really shocked" the US.

"It confirms that the events of Sept 11 have really shocked the nation - affected our work force, affected our business base," he said in a speech at the White House.

And the figures proved the need for a $100bn stimulus package, based around tax cuts, which the House of Representatives passed last week, but requires further approval from US lawmakers.

"The Congress needs to pass the stimulus package and get it to my desk before the end of November," Mr Bush said.

"My call to Congress is, get to work and get something done." Better than expected

The fall in US growth, from a rate of 0.3% in the previous quarter, was the largest since the first quarter of 1991 when the country was suffering its last recession.

But many economists had expected even worse data from a quarter that included the first three weeks of trading after the 11 September attacks.

"It was a bit of surprise," said Stephen Stanley, senior market economist at Greenwich Capital Markets.

"It was much less of a decline than everyone expected."

Analysts credited the strength to some resilience in spending by firms and consumers.

"The reason [the GDP data] was better than expected is the decline in business investment in computers and software was not as bad as expected," said David Orr, chief economist at Wachovia Securities.

Recession fears

Paul O'Neill, Treasury Secretary, said the data revealed hope of the US avoiding recession.

"I think if we can get this stimulus bill in place quickly there's still a plausible argument that the [October to December] quarter could be mildly positive," he said.

But his comments found few supporters on Wall Street.

"I don't think [the data] changes the underlying story which is the recession has probably begun, but it has begun at a less deeper downturn than most expected," said Ian Morris, chief US economist at HSBC in New York.

"It is impossible for them [the figures] to go into positive territory," Tradingweapon.com's Axel Knutson told the BBC's World Business Report.

Data released on Tuesday showed that confidence among US consumers had fallen to its lowest level since February 1994.

Market reaction

Stocks gained in early trade, before falling back as worries mounted over the economy's long-term outlook.

The Dow Jones industrial average closed 46 points lower at 9,075, with the tech-heavy Nasdaq ending up 22 points at 1,690.

The dollar gained ground against major currencies, reaching a record high against the Canadian dollar, and driving the euro for a time back below the $0.90 mark.

"We've got a modest relief rally in the dollar," said Sean Callow, currency economist at IDEAglobal.

"It was priced for disaster."

 WATCH/LISTEN
 ON THIS STORY
The BBC's Patrick O'Connell in New York
"There's a lot of work to do to persuade people about the argument for recovery"
President George W Bush
"People are having tough times in America"
Carey Leahy, Deutsche Bank
"It wasn't as bad as Wall Street was looking for"

Terror's impact

Signs of a slowdown

Rate cuts

Analysis

Key players

FULL SPECIAL REPORT
See also:

26 Sep 01 | Business
IMF warns on global economy
30 Oct 01 | Business
US consumer confidence plunges
07 Mar 01 | Business
US economy: Sluggish growth
31 Jan 01 | Business
Sharp US slowdown confirmed
14 May 98 | Business Basics
GDP, GNP - a basic guide
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