INSTANT VIEW: GDP contracts 0.5 percent in Q3

NEW YORK (Reuters) - The economy shrank more severely during the third quarter than first estimated as consumers cut spending at the steepest rate in 28 years, according to a Commerce Department report on Tuesday that underlined how rapidly activity was slowing.

KEY POINTS: * Corporate profits fell for a second straight quarter and business investment fell, the department said as it revised the annual rate of decline in third-quarter gross domestic product to 0.5 percent from 0.3 percent that it reported a month ago. * It was the sharpest fall in GDP since the third quarter of 2001 when the terror attacks against the United States took place. * The third-quarter decline was a striking contrast with the second quarter's relatively brisk 2.8 percent rate of growth. * The U.S. decline is predicted to accelerate in the fourth quarter and last into 2009.

COMMENTS:

JOHN SILVIA, CHIEF ECONOMIST, WACHOVIA SECURITIES, CHARLOTTE,

NORTH CAROLINA:

"The top story is consumers and businesses do reflect the underlying economic distress. It certainly confirms recession. Corporate profits fell for fifth straight quarters.

"Businesses have very little incentive to hire or to make investments. Lower profits mean lower dividend and income for retirees who rely on them."

NIGEL GAULT, DIRECTOR, U.S. ECONOMIC RESEARCH, GLOBAL INSIGHT,

LEXINGTON, MASSACHUSETTS:

"The GDP is probably not much of a surprise. It's roughly where it was expected.

"Consumer spending fell even more than was first announced so that's bad news especially because all the evidence is that it's still falling in the fourth quarter.

"We didn't cut inventories as much as was first announced so that's a negative and its suggesting that we've got more inventories there than we thought. That's bad news for the future.

"The general pattern of the revisions was that spending was lower and inventories were higher than previously thought so that is a negative combination for the fourth quarter.

"Obviously given how bad consumer spending is that's one of the reasons why the government is coming up with this new program to support consumer lending...they've started trying to focus on keeping consumer going if they can."

MICHELLE MEYER, ECONOMIST, BARCLAYS CAPITAL, NEW YORK:

"Personal consumption was revised down quite a bit. Most of it came from services consumption and that's quite weak to services and it's usually quite resilient to recession. Consumers are under a lot of pressures. They are facing a lot OF headwinds. They are forced to pare across products and services."

"The downward revision to the core PCE deflator - that's probably the most significant on the inflation front."

RON SIMPSON, DIRECTOR, FX RESEARCH, ACTION ECONOMICS, TAMPA,

FLORIDA:

"The markets were relieved that the U.S. GDP data came in line with expectations and we're seeing stocks move higher, and euro/dollar higher. There were fears that it would be much worse. Together with the Fed measures to boost consumer credit, these should ease risk aversion, at least for now."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE CORP, BOSTON:

"It was right on expectations, I guess. Real final sales were a little more negative. Prices roughly the same, so this is exactly what was expected, I'd say. I bet when we get the final number it's going to be even weaker. I don't even think this comes to showing how weak the economy is right now. I think the contraction rate in the fourth quarter is going to be two percent plus, so this is old news, but it's giving you a glimpse of what's really happening.

"I don't think the data will move the markets. It's really a non-event, it's exactly what the market was expecting, so there will be no impact. Other things might have an impact, like this quasi-plan Paulson has."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BANK OF NEW

YORK-MELLON, NEW YORK:

"It was in line with expectations at negative 0.5 percent. I think it anchors the beginning of the U.S. technical recession. It's likely to get much worse before it gets better. Whereas the advance number tends to discount a lot of information, this second reading is generally very dependable. So I think we have a GDP number that's firmly in negative territory, and if anything, it's likely to be revised down further. We'll see more risk aversion and repatriation, and that will continue to support the dollar."

MARKET REACTION: STOCKS: U.S. equity futures indexes remain higher after third-quarter GDP comes in line with expectations. BONDS: Treasury debt prices edge up. DOLLAR: U.S. dollar pares gains versus euro.