INSTANT VIEW: Economic growth contracts in Q3

NEW YORK (Reuters) - The U.S. economy shrank at a 0.3 percent annual rate in the third quarter, its sharpest contraction in seven years as consumers cut spending and businesses reduced investment in the face of rising fears that recession was setting in.

The number of U.S. workers filing new claims for jobless benefits was unchanged last week, the Labor Department said on Thursday, staying at levels signaling a weak labor market as the credit crisis hits hiring.

KEY POINTS:

GDP: * The Commerce Department said the third-quarter contraction in gross domestic product was the steepest since the corresponding quarter in 2001. * The contraction was slightly less than the 0.5 percent rate of reduction that Wall Street economists surveyed by Reuters had forecast. * Consumer spending, which fuels two-thirds of U.S. economic growth, fell at a 3.1 percent rate in the third quarter, the first decline since the final quarter of 1991. * Disposable personal income dropped at an 8.7 percent rate in the third quarter - the steepest since quarterly records on this component were started in 1947. * Business investments fell 1 percent after rising 2.5 percent in the second quarter. * The personal consumption expenditures index rose at a 5.4 percent annual rate, the sharpest since early 1990.

JOBLESS CLAIMS: * Initial claims for state unemployment insurance benefits were a seasonally adjusted 479,000 in the week ended Oct 25, matching the revised level from the prior week. * Analysts polled by Reuters had forecast 475,000 new claims versus a previously reported count of 478,000 the week before.

COMMENTS:

NIGEL GAULT, CHIEF U.S. ECONOMIST, GLOBAL INSIGHT,

LEXINGTON, MASSACHUSETTS:

"Firstly, I thought the exports would have done better. So that's a disappointment to see the export growth slide like that. Of course we know that in the coming months, the picture is likely to darken further.

"Also it is worth noting how much support we had in the quarter from federal government spending, specifically national defense.

"There's a very big increase in the quarter. Defense spending added nine-tenths of 1 percent to the GDP number. That is a lot. It's actually quite interesting if you look at what's going on in the private sector, the private sector was a lot worse than the GDP headline.

"The bad new is the private sector was doing really badly, and if you look across all the categories of private spending apart from nonresidential structures, which cannot possibly continue to grow like this, everything was down. Consumer spending, equipment and software, residential, the whole private side was very weak."

KEITH HEMBRE, CHIEF ECONOMIST, FAF ADVISORS, MINNEAPOLIS:

GDP: "In terms of markers, it's less weakness now and more weakness later. I was surprised that housing and construction components were a bit better than expected.

"If the contribution with inventory were to be revised, it could mean either sharp downward revisions in the third quarter or a very weak fourth-quarter.

"The economy is pretty lousy. It's unlikely to improve in the near term."