Recession Probably Deepened in October: U.S. Economy Preview

Financial News

Nov. 23 (Bloomberg) -- The U.S. recession probably deepened as consumer spending plunged in October by the most since the 2001 downturn and businesses slashed investment, government reports may show this week.

Purchases declined 1 percent after a 0.3 percent drop the prior month, according to the median estimate of economists surveyed by Bloomberg News ahead of Commerce Department figures due Nov. 26. Commerce may also report the same day that orders for long-lasting goods fell for the second time in three months.

The credit crisis has forced cash-strapped consumers to pull back on purchases and companies to cut spending and step up firings. Housing and manufacturing also are deteriorating, a sign the economy is sinking further into what may be the most severe slump in decades.

``The economic indicators are all in the same vein, pointing to a deepening recession,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``Everything is contracting. The economy will stay in a recession for at least six months.''

The Commerce Department's spending report may also show that incomes rose 0.1 percent in October, the smallest gain in three months, according to the Bloomberg survey.

The projected decline in spending, which accounts for two- thirds of the economy, foreshadows a holiday season that may be the worst in six years, according to industry projections. A record two-decade expansion in consumer spending ended in the third quarter, causing the economy to contract.

Prices

Inflation figures in Commerce's spending report may show price pressures have waned, giving way to the risk of deflation, or a prolonged slide in prices. The Federal Reserve's preferred gauge of inflation, which excludes food and energy costs, was unchanged in October after rising 0.2 percent in September.

Orders for durable goods, products meant to last several years, likely fell 3 percent in October following a 0.9 percent increase the prior month, economists in the Bloomberg survey predicted. Excluding transportation equipment, orders probably fell 1.5 percent, the Nov. 26 report may show.

Automakers are aggravating the slump in durables. Sales of cars and light trucks last month were the worst since February 1983, according to industry figures from Autodata Corp. more