Gross domestic product (GDP) figures released yesterday by the Commerce Department show that the US economy shrank by 0.3 percent on an annualised basis in the three months from July to September. With economists expecting even poorer GDP figures for the fourth quarter, the latest data confirms that the economy has now entered into severe recession.

Negative GDP growth for the third quarter was driven by a 3.1 percent decline in consumer spending, the first such contraction since 1991 and the largest fall recorded since 1980.

Consumer spending, partly fuelled by personal debt, has accounted for more than two-thirds of all economic activity in the last period. But mounting layoffs, home foreclosures, credit card defaults, the rising cost of living and the declining value of retirement savings have had a devastating impact on broad layers of the population. The Commerce Department reported an extraordinary 8.7 percent third quarter decline in disposable personal income—that is, income after taxes and adjusted for inflation. This is the largest fall ever recorded since figures were first kept in 1947.

Disposable income in the second quarter had increased by 11.9 percent on an annualised basis due to tax rebates from the Bush administration’s emergency economic stimulus package.

Unsurprisingly, spending has declined together with incomes. In the three months up to October, purchases of non-durable goods—smaller purchases such as food and clothing items—plunged by 6.4 percent, the biggest decline since 1950. Spending on durable goods, such as cars and furniture, declined by 14.1 percent.

Housing investment plunged 19.1 percent on an annualized basis. Also recorded in the GDP data was a decline of 1 percent in “real non-residential fixed investment,” that is, business investment in capital items including machinery, vehicles, and computers. The New York Times described this as “a worrying sign of a new, potentially pernicious phase of the downturn.”