Third-Quarter U.S. Growth Revised Lower

Third-Quarter U.S. Growth Revised Lower
By JAVIER C. HERNANDEZ
Copyright by The New York Times
Published: November 24, 2009
http://www.nytimes.com/2009/11/25/business/economy/25econ.html?hpw


The United States economy grew at slower pace in the third quarter than previously reported, the government said Tuesday, as weak consumer spending and rising imports softened the effect of stimulus efforts.

A separate report showed consumer confidence inched upward in November, though it remained at low levels as shoppers head into the holiday season.

The nation’s gross domestic product — the total value of goods and services in the economy — rose at an annual rate of 2.8 percent from July through September, the Commerce Department said, falling short of the 3.5 percent originally reported last month. The revised number, based on more complete data, was in line with analyst expectations.

But even though growth was slower, the third quarter still marked the end of the longest economic contraction since World War II, with the economy expanding for the first time in a year.

Much of the growth can be attributed to the billions of dollars the federal government has pumped into the economy as it seeks to mitigate the effects of a deep recession.

Popular government-financed initiatives, like a credit for first-time home buyers and the cash-for-clunkers program, have helped prop up spending in crucial sectors. But the nation is still grappling with the highest unemployment rate in 26 years, hampering efforts to persuade consumers to open their wallets again.

The Commerce Department said Tuesday that consumer spending in the third quarter increased 2.9 percent, falling short of the 3.4 percent it reported last month. That number worried some economists, who said it was below healthy margins and lower than the levels seen in 1983, when unemployment was equally high. Consumer spending makes up about 70 percent of the economy.

Spending on cars fell more than originally reported, and commercial construction was weaker.

Imports rose 20.8 percent in the third quarter, rather than the 16.5 percent originally reported, contributing to a widening trade deficit. High oil prices helped drive up the price of imports.

Economists said the revised numbers reinforced the third quarter’s strength but suggested that growth going forward would be slow. There is still the question, they noted, of whether the economy will be able to prosper without government support.

Joshua Shapiro, chief United States economist for MFR, said consumer spending would probably be at low levels for some time, curtailing growth of the broader economy.

“The most important factor limiting growth will be households continuing to struggle with ravaged balance sheets and lingering labor market weakness,” he wrote in a research note on Tuesday.

The consumer confidence index, based on interviews with 5,000 households conducted by the Conference Board, suggested consumers are feeling slightly more optimistic about the overall health of the economy. The index increased less than a point from October.

Americans still have pessimistic views of their future earnings, the report cautioned, and fewer expect the economy to pick up in the next six months. “Consumers are entering the holiday season in a very frugal mood,” the report said.