While government figures released Tuesday for the third quarter showed only a 0.5 percent drop in the gross domestic product, a key indicator of economic health, two reports on home sales sketched a bleaker picture. Demand for both new and existing homes fell more sharply in November than expected.
In addition, GDP is likely falling at a sharper pace in the current quarter because of widening fallout from the worst financial crisis to hit the country since the Great Depression. If GDP does plunge 6 percent in the fourth quarter, it would be the sharpest such decline since a 6.4 percent drop in the first quarter of 1982.
"It will get a lot worse before it gets better," said Nariman Behravesh, chief economist at IHS Global Insight, a Lexington, Massachusetts, forecasting firm. "We are in the midst of the worst recession in the postwar period, even factoring in a massive stimulus program."
Economists said they saw no likelihood of a quick turnaround in housing or the overall economy, given that the credit markets remain locked despite a $700 billion financial rescue package and billions of dollars of loans supplied by the Federal Reserve. Mortgage financing has dried up for many potential buyers, further damaging a housing industry struggling with a tide of foreclosures.
Wall Street pulled back in quiet trading ahead of the holiday after the reports were released Tuesday morning. The Dow Jones industrial average finished lower for the fifth straight day, falling 100 points to close near 8,419.
Signs of the growing recession are showing up on main street too. Holiday thefts are up sharply, . And Americans' reliance on food stamps has jumped around the country as well, .
The Bush administration warned that the country should be prepared for worse news to come.
"The fourth quarter, because of the credit crisis, the standstill in credit as markets froze up and the financial market turmoil, will be significantly weaker," presidential spokesman Tony Fratto told reporters at the White House on Tuesday.
President-elect Barack Obama's administration is assembling a stimulus package that could reach $850 billion for spending on infrastructure such as roads and bridges, aid to states, modernizing schools and energy project.
Vice President-elect Joe Biden told a meeting of Obama's economic team that as the economy worsens, the need for a bold plan "grows every day."
Still, private economists said that even if the Obama administration achieves its goal of enacting a stimulus program in January, it won't arrive soon enough to keep the economy from enduring a severe downturn well into next year.
Behravesh said he thinks the recession will bottom out this quarter with the biggest quarterly drop yet in GDP. But he forecast another sizable decline of around 4 percent in the first three months of 2009, and then a slightly smaller drop in the second quarter before the economy begins to rebound next summer.
Other economists are even more pessimistic. Joshua Shapiro, chief U.S. economist at MFR Inc., said he did not see the GDP turning positive until 2010. "There were just so many excesses that the correction process is going to take a long time," he said.
The current recession began in December 2007. That means it's already the longest downturn since the 16-month recession of 1981-82. That downturn and another 16-month slump in 1973-75 are tied as the longest recessions since World War II.
Some analysts said the downturn could be the most severe since the Great Depression, if measured by both duration and lost output.
Commerce reported Tuesday that GDP fell at an annual rate of 0.5 percent in the third quarter, which was unchanged from the estimate the government made a month ago. But their report showed that corporate profits fell 1.2 percent during the quarter, the fifth straight quarterly drop and even worse than the 0.9 percent decline estimated a month ago.
Separately, the Commerce Department said new home sales dropped 2.9 percent in November to an annual sales rate of 407,000 units, the slowest pace in nearly 18 years. And the National Association of Realtors said sales of previously owned homes fell by 8.6 percent to an annual rate of 4.49 million units.
The median sales price of an existing home plunged 13.2 percent in November to $181,300. That was the biggest year-over-year drop since 1968. The median, or midpoint, price for a new home sold in November also fell sharply, dropping 12.7 percent to $220,400.
The 0.5 percent drop in GDP in the third quarter followed a 2.8 percent increase in the spring, a period that was boosted by the distribution of millions of economic stimulus payments. GDP was up 0.9 percent in the first quarter after having dropped by 0.2 percent in the fourth quarter of 2007.
The National Bureau of Economic Research has determined that the country slipped into a recession in December 2007.
While a common rule of thumb for a recession is two consecutive quarters of falling GDP, the NBER uses other data to determine when recessions begin and end, including employment statistics. The economy has lost jobs every month since January. It's shed 1.9 million payroll jobs this year, including more than a half-million jobs lost just in November. The unemployment rate now stands at a 15-year high of 6.7 percent.
For the government's last look at July-September GDP, there were only minor revisions. Spending by consumers plunged at an annual rate of 3.8 percent, slightly more than the 3.7 percent fall reported a month ago. It was the biggest decline in consumer spending, which accounts for two-thirds of economic activity, in nearly three decades. An 8.6 percent drop was recorded in the second quarter of 1980.
Residential construction, where the current economic troubles began, fell at an annual rate of 16 percent in the third quarter, while nonresidential construction, which had been buffering the construction industry, faltered as well, dropping by 1.7 percent.
The Treasury Department, meantime, said it has provided an additional $4.7 billion to 92 banks as part of the government's $700 billion rescue of the financial system.
The department released a list of 49 banks that got final approval last Friday to receive $2.8 billion. It said an additional 43 banks received final approval Tuesday, but those names will not be released until Monday.
Treasury also confirmed that it had given preliminary approval to American Express Co. and CIT Group to receive support from the $700 billion bailout fund.
In related moves, shareholders approved two acquisitions that were forced by banks' massive credit losses.
PNC Financial Services Group Inc. and National City Corp. shareholders approved PNC's acquisition of the Cleveland-based bank. The deal is expected to be complete by late 2009.
And Wells Fargo & Co. and Wachovia Corp. shareholders approved Wells Fargo's $11.8 billion purchase of Wachovia.