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The diagnosis for the health of the US economy continues to worsen with new data showing it

is shrinking at the fastest rate for seven years and house prices falling by a record

amount.

Revisions to the Commerce Department’s gross domestic product (GDP) reveal a fall of 0.5pc

in the three months to September, against an initial reading of 0.3pc.

The decline was the weakest GDP reading since the third-quarter of 2001, when the US

economy, already hurting from a mild recession, was hit by the aftermath of the September 11

terror attacks. One of the reasons for the revision was a fall in corporate profits, which

fell by 3pc after tax to $1.3 trillion in the quarter, down 9.9pc on the year.

To add to the gloom, the Standard & Poor’s/Case-Shiller index showed house prices falling by

17.4pc in September, the biggest yearly fall since the survey began in January 1987.

The index, which is based on prices from 20 major metropolitan areas, showed a 16.6pc

decline in the third-quarter from the same quarter a year ago down from 15.1pc posted in the

second quarter.

“The turmoil in the financial markets is placing further downward pressure on a housing

market already weakened by its own fundamentals,” said David Blitzer, chairman of S&P’s

index committee.

The worst-hit city in September was San Francisco, where prices fell 3.9pc, followed by Las

Vegas and Miami, both down 2.6pc.

“This is a pretty gloomy report,” said Karl Case, co-developer of the index. “Unemployment

is rising rapidly, a primary factor that causes foreclosures to rise and home prices to

decline,” he added.

The Organisation for Economic Co-operation and Development (OECD) said the US economy has

probably fallen into a recession that will continue until the middle of next year.

“The US economy is likely to have already entered a recession and the near-term prospect is

for further weakness,” the free market organisation continued in a statement.

IHS Global Insight chief economist Nariman Behravesh said that he expects the US economy to

contract by around 4pc in the fourth quarter, as output will continue to contract in the

first and second quarters of next year.

“We are in the early stages of one of the worst recessions in the post-war period, even

factoring in a massive stimulus programme” he continued, with reference to the potential

$300-500bn stimulus package President-elect Barack Obama is believed to be considering to

boost American development.

The only positive note for the US economy came from the Consumer Confidence index, which

improved slightly in November from a record low in October. The Conference Board’s consumer

confidence index stood at 44.9 in November, up from 38.8 in October – the survey is based on

an index of 1 to 100, with anything over 50 being positive.