As many analysts expected, the U.S. gross domestic product, or GDP - the value of goods and services produced in the United States - experienced negative growth during the third quarter of this year. The Commerce Department says economic activity contracted at a 0.3 percent annual rate. VOA's Barry Wood has more.

Economists say it is a sign that the U.S. economy is headed toward recession. Consumer spending fell sharply in September as people worried about their jobs, savings and value of their homes, contributing to negative economic growth - a sharp contrast to nearly three percent annualized GDP growth during the second quarter.

On Thursday, Nouriel Roubini from New York University told the U.S. Congress Joint Economic Committee that recession - officially defined as at least two consecutive quarters of negative economic growth - is looming.

"Everybody out there feels it is a recession," said Roubini. "It is obviously a recession. The only debate at this point is how severe, how long and how protracted, in my view."

An ice sculpture entitled 'Main Street Meltdown,' in New York, 29 Oct 2008

A three percent drop in consumer spending was the first decline since 1991 and the biggest drop since 1980. The cut back had a particularly adverse effect on auto sales. Consumer confidence fell as the global credit squeeze and stock market decline intensified.

Former International Monetary Fund chief, economist Simon Johnson told the Joint Economic Committee that the U.S. government needs to boost spending to avert a catastrophic downturn.

"We should consider a fiscal stimulus on the order of $450 billion, roughly three percent of U.S. GDP, which would be an extraordinary step to take under any circumstances unless you think we are entering into a potentially serious and prolonged recession," he said.

An earlier stimulus plan approved by Congress in February totaled only $150 billion.

Economist Nouriel Roubini, who predicted the fall in home prices, says Congress needs to turn from supporting financial institutions on Wall Street to helping struggling consumers.

"Unless we also support Main Street by making sure that aggregate demand is not going to collapse, six months from now everything we've done to backstop the banks is going to be undone by collapse in aggregate demand," he said.

Roubini says the government has already committed $3 trillion to recapitalize the banking system. Massive increases in government spending have already pushed the federal deficit to near record levels.