The U.S. economy slowed sharply in the third quarter, declining at a 0.5% annual rate, unrevised from last month's estimate, the Commerce Department reported Tuesday. It's the weakest quarterly growth rate since the first quarter of 2001. The economy grew 2.8% in the second quarter. Economists now say that a recession began December 2007, based on data showing declining employment, incomes and industrial production. But it didn't really sink in until the July-September quarter. For the current quarter, economists are predicting a sharp decline in the neighborhood of 6.0%. This would be the biggest drop since the early 1980s. Gross domestic purchases -- the total value of goods and services bought by U.S. residents -- fell 1.5% in the third quarter, experiencing downward momentum after falling only 0.1% in the second quarter. Final sales of domestic product, including exports, fell 1.3%. The third-quarter gross domestic product was in line with the forecasts of economists surveyed by MarketWatch. See Economic Calendar. In the revision released Tuesday, stronger commercial building was offset by less investment in equipment and software. Read full survey. Core consumer inflation, which excludes food and energy costs, was revised lower to a 2.4% annualized pace in the quarter from 2.6% estimated previously. Consumer prices rose 2.3% compared with the same quarter one year ago, essentially within the Federal Reserve's comfort zone for inflation. With demand weakening and oil prices plunging, inflation has been moderating in recent months so much so that deflation has become the biggest concern in the outlook. Corporate profits were again weak. Pre-tax profits fell 1.2% in the third quarter, down from the previous estimate of a 1.0% drop. Last week, Federal Reserve Chairman Ben Bernanke and his colleagues cut the Fed's interest rate target to just above zero in order to spur growth. Meanwhile, President-elect Barack Obama and his economic team are preparing a massive fiscal stimulus package in an effort to stabilize the economy. The biggest revision in the report was in nonresidential investment, which did not fall as much as first believed. But consumers did not buy as much prepackaged software as earlier estimates. Spending on software was revised to a 7.5% drop from the previous estimate of a 5.7% decline. Consumer spending fell 3.8% not 3.7%, with weaker spending on nondurable goods. Business investments decreased 5.3%, not 5.6%. Residential investments fell 16.0%, not 17.6%. Inventories fell $29.6 billion. Rounding out the GDP revisions, government spending rose by 5.8%, not 5.4%. Details For the quarter, nominal GDP rose 3.4% to an annual rate of $14.41 trillion. In the third quarter, consumer spending decreased 3.8% on an annualized basis, slower than the 1.2% rate increase seen in the second quarter. Spending on durable goods fell 14.8%, spending on nondurable goods decreased 7.1% and spending on services fell 0.1%. Consumer spending subtracted 2.8 percentage points to growth. Business investments decreased 5.3% in the third quarter, downshifting from a 1.7% decline in the prior three months. Investments in equipment and software fell 7.5%, while investments in structures increased 9.7%. Business investment subtracted 0.8 of a percentage point to growth. Inventories fell by $29.6 billion in the quarter, a positive sign for future growth because lean inventories could spur additional production once demand recovers. The change in inventories added 0.84 percentage points to growth. Residential investments plunged an annualized 16.0% in the third quarter. Residential investments have fallen for eleven straight quarters. Housing subtracted 0.6 of a percentage point from growth. Exports increased 3.0% in the third quarter. Imports fell 3.5% after a 7.3% fall in the second quarter. Net exports contributed 1.1 percentage points to growth. Government spending increased 5.8% after rising 3.9%. Federal spending increased 13.8%. State and local government spending rose 1.3%. Government spending contributed 1.1 percentage points to growth.

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