The U.S. economy contracted in the July-September period by 0.5 percent, much deeper than first thought, the Commerce Department reported Wednesday.

The update reading was weaker than the 0.3 percent rate of decline first estimated a month ago, and the worst showing since the world's largest economy shrank at a pace of 1.4 percent in the third quarter of 2001, when the nation was suffering through its last recession.

GDP measures the value of all goods and services produced within the United States. The third quarter GDP data will be revised once more by the department.

"The numbers are what they are, which is they're troubling. This is why we are having to take such bold actions which we are taking," White House spokeswoman Dana Perino told reporters.

"We think one of the reasons that the data sort of declines is that consumers pulled back on spending and we think a lot of that is because of the credit crisis, which is why we are so focused on un-freezing credit markets," she was quoted as saying.

The contraction came as nervous consumers cut back on their spending by 3.7 percent, the biggest amount in 28 years. That compared with an earlier estimate of a 3.1 percent drop.

It marked the first drop in consumer spending, which accounts for two thirds of overall economic activity, since late 1991, when the economy was coming out of a recession.

That reflected a 15.2 percent drop in durable goods such as cars and appliances, expected to last three years or more. It was the sharpest decline since 1950.

In the July-to-September period, consumers cut back on purchases of cars, furniture, household appliances, clothes and other things.

Meanwhile, businesses cut their spending on equipment and software at a 5.5 percent pace, the most since the first quarter of 2002.

Residential spending plunged at a 17.6 percent pace in the third quarter, marking the 11th consecutive quarterly decline.

Exports of goods and services, a major force pushing the economy to grow in the past quarters, slowed in third quarter, reflecting less demand from overseas buyers who are coping with their own economic problems.

The nation's exports grew at a 3.4 percent pace in the third quarter, a sharp deceleration from the 12.3 percent growth rate in the second quarter.

The classic definition of a recession is two consecutive quarters of negative GDP. Many economists believe the economy will continue to shrink in the fourth quarter and early next year.

(Xinhua News Agency November 27, 2008)