More Grim Economic News. But Maybe We're Near the End

Its official: The U.S. economy is on the skids. According to new Commerce Department figures, the Gross Domestic Product (GDP, or the output of goods and services produced within the U.S.) shrank at an annual rate of 1.1 percent during the 3rd quarter of 2001. This is the most dramatic decline since 1991, when the country was firmly mired in recession, and represents a steep revision from the original estimate of 0.4 percent, released last month.

The report didnt seem to shock Wall Street; Friday trading saw the Dow and S&P up slightly and the Nasdaq inched downward into negative territory.

So what do these numbers really mean? TIME senior economic correspondent Dan Kadlec weighed in with his take on the latest bad news.

Is this surprising news?

Its clearly not a surprise. As revisions go, this is a pretty steep one, which would suggest that things are indeed as bad as they feel. A lot of people have felt the recession for months, and it simply hasnt shown up in the numbers. So in a way this figure just validates what weve been feeling for a while now.

How deeply are we into this recession?

Again, I think we all knew we were deep into it before the numbers began to show it. And there have been plenty of economists with their heads buried in the sand. Everybody knows the summer was bad — and the fall was worse.

Will we see another rate cut?

Thats an open question. Theres still room for a cut — the market have been telling us maybe there wont be one, but I think the Fed might go ahead and surprise us with another one.

Is there any good news on the horizon?

The most important good news is recessions generally last a year — and were already well into this one. Another encouraging thing is that the biggest revision was in inventory levels — there was more drawdown than we expected, which means inventory is being depleted. So companies will probably have to start manufacturing new products soon, and thats always good news.