U.S. Economy Started to Grow Again in the Third Quarter/US economy grows by 3.5% - First expansion in a year signals end to recessi

U.S. Economy Started to Grow Again in the Third Quarter
By CATHERINE RAMPELL
Copyright by The New York Times
Published: October 29, 2009
http://www.nytimes.com/2009/10/30/business/economy/30econ.html?_r=1&ref=global-home


Ending a year of contraction, the United States economy grew in the third quarter, the Commerce Department said on Thursday. But even if a recovery is technically in the offing, job seekers likely will not begin to feel the benefits for months to come.

The nation’s gross domestic product expanded at an annual rate of 3.5 percent in the three months ending in September, a significant spike from a somewhat shrunken base. The economy had contracted at annual rates of 0.7 percent and 6.4 percent in the second and first quarters of this year, respectively.

Much of the growth can be attributed to the billions in federal aid devoted to economic renewal, including policies that encouraged consumer spending on cars and housing.

“That alters the dynamic of a recession and a recovery, and what you’re left with, to some degree, is an artificial recovery,” said Dan Greenhaus, chief economic strategist at Miller Tabak, an investment research firm. “Over the next several quarters, the support for the economy on the part of the government wanes and the economy has to find its own footing.”

The cash-for-clunkers program helped boost consumer spending on durable goods, which grew by an annual rate of 22.3 percent in the third quarter compared to a decline of 5.6 percent in the previous quarter. Similarly, economists say the $8,000 federal tax credit for first-time homebuyers helped revive spending on housing, which increased 23.4 percent in the third quarter, in contrast to a decrease of 23.3 percent in the second quarter. The economic growthcame without a major surge in inflation. The price index for gross domestic purchases, a broad measure of prices that Americans pay for goods and services, increased at an annual rate of 1.6 percent in the third quarter, compared with an increase of 0.5 percent in the second, the department said. Excluding food and energy prices, the inflation index rose 0.5 percent in the third quarter, compared with an increase of 0.8 percent in the second.

The stock market surged in reaction to the news, with major indexes up about 1 percent in mid-morning trading.

Thursday’s report will likely provide ammunition to both advocates and opponents of additional federal spending to stimulate certain parts of the economy, as mutually reinforcing pessimism among consumers and employers continues to fester.

On the one hand, the poor job market is discouraging Americans from increasing their spending by too much. Consumer spending on nondurable goods like food and clothing, for example, increased 2 percent in the third quarter, compared to a decline of 1.9 percent in the second.

Likewise, stagnant consumer demand and withering consumer confidence have left companies wary of hiring more employees — or, for that matter, taking any expensive risks. The jobless rate reached 9.8 percent in September, its highest rate in 26 years. According to Thursday’s report, business investment in buildings and other structures fell at an annual rate of 9 percent in the third quarter.

“At some point firms will have to begin to bring some of their workers back, but it may not be anytime soon,” said Joseph Brusuelas, director of Moody’s Economy.com. “That means 2010 may be a year of growth in the economy, but it’s likely to be characterized as jobless growth.” Initial jobless claims fell 1,000 in the week ending Oct. 24 to 530,000, according to a Labor Department report also released Thursday. The number has been trending downward, but is still “well above the level of claims that is historically associated with net job creation,” according to a report by RDQ Economics.

Such forces may pressure Washington to look for targeted interventions into the labor market, in addition to last winter’s broader $787 billion stimulus package, which continues to work its way through the economy. Proposals on the table include another extension in unemployment benefits and various job creation programs.

A slower drawdown in inventories was one bright spot in Thursday’s report, as it indicated that businesses have largely sold out their current stock and may rev up orders in the coming months to replenish supplies.

“Everybody had been dealing with a just-in-time status quo,” said Sandra Westlund-Deenihan, president and design engineer for Quality Float Works, a plant in Schaumburg, Ill., that manufactures metal float balls and valve assemblies. “They were living off inventories they’d built up over the last several years. Now they’ve drawn that down and reached a point where they may have to have it ready and back on the shelf again.”

Like many American manufacturers, Ms. Westlund-Deenihan says that international business has helped keep her company afloat. United States exports overall grew at an annual rate of 14.7 percent in the third quarter, while imports grew 16.4 percent.

“We’re seeing a strong rebound in trade simply because global trade had collapsed before,” said Robert Barbera, the chief economist at ITG.

Javier C. Hernandez contributed reporting.





US economy grows by 3.5% - First expansion in a year signals end to recession
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: October 29 2009 12:57 | Last updated: October 29 2009 12:57
http://www.ft.com/cms/s/0/16073bb0-c47f-11de-912e-00144feab49a.html


The US economy grew for the first time in a year as an aggressive array of stimulus measures brought an end to the longest period of contraction since the Great Depression.

US gross domestic product grew at an annualised rate of 3.5 per cent in the third quarter after shrinking in each of the past four quarters, commerce department figures showed on Thursday. Wall Street analysts had forecast that the economy would grow by 3.2 per cent.

Boosting growth was an upturn in consumer spending, residential investment and strong government spending. The impact of government stimulus measures succeeded in jolting the economy during the latest quarter, as the soon-to-expire first-time home buyer tax credit and the “cash for clunkers” car rebate programme lifted residential investment and chipped away at car inventories.

“The expansion in GDP in the third quarter is further confirmation that the recession ended in the second quarter,” said John Ryding and Conrad DeQuadros, economists at RDQ Economics.

According to the White House’s Council of Economic Advisers, the stimulus added more than 2 per cent to real GDP growth in the third quarter.

“These numbers are heavily supported by the policy measures that were put in place,” Christian Menegatti, head of global economic research at Roubini Global Economics, said ahead of the report. “These types of take-it-or-leave-it incentives are very effective in the short term.”

In depth: US downturn

The effects on the US real economy: job cuts, rising insurance premiums and the prospect of deflation

Consumer spending, which accounts for about 70 per cent of economic activity, rose by 3.4 per cent after rising by only 0.9 per cent in the second quarter, while the surge in car demand lifted durable goods purchases by 22.3 per cent. Personal consumption expenditures added 2.36 percentage points to GDP growth.

Federal spending climbed by 7.9 per cent in the third quarter, compared with a rise of 11.4 per cent in the prior three months, led by an increase in non-defence spending. This added 0.62 percentage points to the growth in output.

Businesses slowed their liquidation of inventories during the past three months, adding nearly a percentage point to the gain in economic growth. Private companies slimmed their stocks by $130.8bn, down from $160.2bn in the second quarter.

Blunting growth was international trade, with the increase in imports outpacing that in exports.

Many analysts say the rate of growth will slow after the third-quarter jump, as the initial effect of the stimulus wanes. In its latest Beige Book survey, the Federal Reserve said that most parts of the US are seeing stabilisation or growth, but that the rebound has remained weak. The Fed pointed to renewed strength in residential real estate and manufacturing but expressed concern about commercial property.

Economists at Goldman Sachs argue that the recovery will be “sluggish” with inflation and interest rates remaining low. They warn that headwinds abound with small companies underperforming, the labour market stretched, state and local budgets cutting back and a persistent excess of housing supply.

In spite of the third quarter turnround, recent data have been mixed. Although industrial production and durable goods orders showed encouraging signs of strength recently, new home sales and consumer confidence failed to meet expectations.

Analysts suggest that unemployment, which tends to lag behind during an economic recovery, will continue to be a drag on future growth. The Obama administration is currently debating the merits of a jobs tax credit to help pull back the unemployment rate, which is expected to peak at 10.3 per cent early next year.

Separately on Thursday, labour department figures showed that fewer Americans made new claims for jobless benefits last week. Initial unemployment claims fell by 1,000 to 530,000, while those continuing to claim benefits fell by 148,000 to 5.95m.