December 2, 2001	Sunday	Ramazan 16, 1422

LOS ANGELES, Dec 1: The US economy shrank more than previously estimated in the third quarter, recording its biggest contraction in a decade amid sinking corporate profits and dwindling business inventories.

Gross domestic product, a measure of all goods and services produced in the US, fell at a revised 1.1 per cent annual rate, the Commerce Department said on Friday.

The preliminary report was the second for the quarter, following a negative 0.4 per cent estimate — the first contraction since 1993. The government will release its final take on third-quarter GDP in December.

The 1.1 per cent decline was the largest since the economy contracted at a 2 per cent rate in the second quarter of 1991. Most economists had predicted Friday’s report would show contraction at a 1 per cent rate, according to a survey by Thomson Global Markets.

The weak third-quarter performance reflected a sharp pullback in consumer spending and a continued plunge in business investment in new plants and equipment. The weakness resulted from the terrorist attacks and the prolonged slowdown in the economy. The revised GDP figure shows just how quickly and dramatically the economy sank after the attack. Most economists expect to see continued contraction when advance fourth-quarter GDP figures are released in January.

One of the biggest reasons third-quarter GDP was revised downward was because businesses performed well at getting rid of excess inventories. Inventories were revised to a $60.1 billion fall from a $50.4 billion decline. While that sets the stage for companies to ramp up production in the future, the process ended up shaving 0.75 of a percentage point from GDP growth.

The GDP report follows the official declaration Monday by the National Bureau of Economic Research that the country had tipped into a recession in March. That ended the longest expansion in US history and began the first downturn in a decade. The panel of six prominent academic economists stressed that even though they had picked March as the official start of the recession, the country might have been able to avoid a full-blown downturn had it not been for the Sept 11 attacks.

The weak economy also has taken its toll on corporate profits, which sank 7.1 per cent during the third quarter on an after-tax basis, following a 1.7 per cent decline during the second quarter. After-tax profits were down 18.7 per cent from a year earlier.

Business investment in new plants and equipment, which has been severely depressed for a year, fell at a rate of 9.3 per cent in the third quarter. Investment was estimated as an 11.9 per cent decline in the advance report.