US GDP growth revised down to 2.8% - Home prices grow for fifth month running

US GDP growth revised down to 2.8% - Home prices grow for fifth month running
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: November 24 2009 14:03 | Last updated: November 24 2009 16:27
http://www.ft.com/cms/s/0/2b70671c-d8fa-11de-99ce-00144feabdc0.html


The US economy grew less than previously thought in the third quarter, while home prices and consumer confidence crept higher, signalling a slow but steady emergence from the recession.

US gross domestic product grew at an adjusted annual rate of 2.8 per cent, the commerce department said on Tuesday, down from a previously estimated expansion of 3.5 per cent, but still breaking a dire stretch of four straight quarters of contraction.

The revision was in line with economists’ estimates, reflecting weaker consumption, a rise in imports and slimmer non-residential investment. Consumer spending grew by 2.9 per cent, down from the 3.4 per cent that was originally reported.

“This is a slow motion recovery,” said Brian Bethune, chief US economist at IHS Global Insight. “Let’s be thankful that we’ve got a recovery that’s in train, some positive growth and no inflation.”

In spite of the weaker spending, the economy was still boosted by a greater demand for durable goods such as vehicles, thanks to the popular ‘cash-for-clunkers’ car rebate scheme. US businesses also trimmed inventories at a slower rate than in the previous quarter.

The return to growth, which came after the longest and deepest period of contraction since the Great Depression, has also begun to translate into greater profits for companies.

Third quarter corporate profits rose by 13.4 per cent, marking the strongest performance for businesses since 2004. Aggressive job cuts and restructuring squeezed more productivity from workers and US financial companies saw a surge in earnings.

“Higher productivity, lower unit labour costs and as we see now, an increase in profitability that in turn will leave the corporate sector better able to self finance a recovery, as long as the lack of hiring does not kill the golden goose, the US consumer,” said Alan Ruskin, a strategist at RBS Greenwich Capital.

The Conference Board said on Tuesday that consumer confidence ticked up in November, as anxiety over unemployment eased and consumers expected business conditions to improve. However, feelings about “current conditions” remained near a 26-year low, boding poorly for consumer spending during the holiday season.

“Clearly we’re not in the depths of financial panic we had last year,” said Stuart Hoffman, chief economist at PNC Financial Services. “But it’s certainly not a bull charging out of the stall recovery.”

The GDP figures come a week after Ben Bernanke, chairman of the Federal Reserve, said that he did not see asset bubbles forming in the US, in spite of the stock market rally. However, Barack Obama, US president, warned that mounting public debt remained a risk to the economy and that without “urgent steps” to correct the problem a “double-dip” recession was possible

Meanwhile, the US housing market, formerly a great weight on the economy, has showed continued signs of strength as home prices rose for the fifth month running. The closely watched Case-Shiller home price index showed that US home prices in the biggest US cities rose by 0.3 per cent from August to September.

Compared with a year ago, home prices are off by 9.4 per cent, the smallest annual decline in nearly two years. Although the monthly increase was welcome, economists noted that the acceleration in prices has abated in spite of aggressive measures to prop up the market.

“We are very worried about the potential for a huge wave of supply next year, both from private sellers and banks,” said Ian Sheperdson, chief US economist at High Frequency Economics. “We fully expect home sales to rise next year but prices could easily reverse their recent gains.”

Detroit, Minneapolis, Chicago and San Francisco showed the strongest monthly price increases in September, while Cleveland and Las Vegas remained depressed.