Ex-Fed chairman Volcker joins Obama's economic recovery team

US GDP predicted to contract by 3-5 per cent in fourth quarter

The US President-elect Barack Obama named Paul Volcker, the former Federal Reserve chairman, to a panel that will advise on how to pull the US economy out of recession, amid more signs that the downturn is accelerating.

Economic data yesterday showed that business investment in durable goods has fallen sharply; the housing market continues to languish, and consumer spending has contracted at its fastest rate for seven years. Meanwhile, the upscale retailer Tiffany & Co painted a gloomy outlook for the holiday shopping season, which kicks off in earnest tomorrow after Thanksgiving.

The new Economic Recovery Advisory Board will draw members from academia and business as well as from government, Mr Obama said. "Sometimes policy-making in Washington can become a little bit too ingrown, a little bit too insular," he added. "The walls of the echo chamber can sometimes keep out fresh voices and new ways of thinking."

It was Mr Obama's third announcement in as many days, aimed at reassuring markets that there is no power vacuum or policy drought during the long transition between presidents.

Austan Goolsbee, the University of Chicago economist who is Mr Obama's longest-serving economic adviser, will also serve on the board, which will be charged with coming up with ideas to pull the US economy out of its funk. Wall Street is currently predicting GDP will contract by between 3 per cent and 5 per cent in the fourth quarter of this year, its worst performance in at least a quarter of a century.

Orders for durable goods – expensive home appliances and capital equipment for businesses – fell at an annualised rate of 6.2 per cent in October, harder than Wall Street had been predicting. The decline was the third monthly fall in a row, coming on the heels of a decline of 0.2 per cent in September – a revised figure, which compared to an earlier calculation that showed a gain.

Particularly gloomy for the economy, the Commerce department's report showed that nervous businesses have been scaling back their investment. Orders for non-defence capital goods excluding aircraft, watched by economists as the best proxy of business spending, plunged by 4.0 per cent, on top of a 3.3 per cent drop in September.

Unemployment claims fell a little last week, but remain at high levels. The number of people claiming benefits for more than one week fell 54,000 to 3,962,000, but the month-long average is still at a 25-year high.

Reflecting increased job insecurity and the falling housing market, consumer spending fell 1.0 per cent last month, according to a separate survey.

And new home sales data showed transactions at a 17-year low, down a further 5.3 per cent in October, with a backlog of properties that would take 11.1 months to clear at the current rate. These figures, too, were worse than economists predicted. They reflect the hit to buyer confidence caused by September's financial panic, and the continued dearth of affordable mortgage offers as a result of the credit crisis. Optimists, though, pointed to the sharp decline in mortgage rates that continued yesterday, a day after the Federal Reserve announced it would spend $600bn buying mortgage-related securities in the secondary market.