The U.S. Postal Service ended its third fiscal quarter June 30 with a net loss of $1.13 billion.

The loss was a dramatic come-down for the agency, which had managed to break even in the first six months of its fiscal year. With no economic recovery in sight, the Postal Service expects an end-of-year, economy-driven net loss.

Operating revenue was $17.9 billion in the third quarter, a decrease of $437 million, or 2.4 percent, compared to the same period last year.

USPS blamed the national economic slowdown for a 5.5 percent reduction in both First-Class Mail and Standard Mail. Volume of 48.5 billion pieces may not pick up again when the economy recovers, said Postmaster General John Potter.

Rapidly escalating transportation costs due to higher fuel prices took a bite out of the bottom line, as well. But operating expenses increased only 1 percent compared with the third quarter last year. Cost controls and service performance held operating expenses to a total of $19 billion, an increase of only $178 million despite the higher fuel prices.