Economy grows at 3.5 percent pace; signals end of recession
Filed under: Economy
The economy grew at a 3.5 percent pace in the third quarter, the best showing in two years, fueled by government-supported spending on cars and homes.
The Commerce Department report delivered the strongest signal yet that the economy entered a new, though fragile, phase of recovery and that the worst recession since the 1930s has ended.
The much-awaited turnaround ended the streak of four straight quarters of contracting economic activity, the first time that's happened on records dating to 1947.
It also marked the first increase since the spring of 2008, when the economy experienced a short-lived uptick in growth.
The Commerce Department report delivered the strongest signal yet that the economy entered a new, though fragile, phase of recovery and that the worst recession since the 1930s has ended.
The much-awaited turnaround ended the streak of four straight quarters of contracting economic activity, the first time that's happened on records dating to 1947.
It also marked the first increase since the spring of 2008, when the economy experienced a short-lived uptick in growth.
Still, the much-awaited turnaround ended the streak of four straight quarters of contracting economic activity, the first time that's happened on records dating to 1947.
It also marked the first increase since the spring of 2008, when the economy experienced a short-lived uptick in growth.
The third-quarter's performance - the strongest since right before the country fell into recession in December 2007 - was slightly better than the 3.3 percent growth rate economists expected.
Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes.
Consumer spending on big-ticket manufactured goods soared at an annualized rate of 22.3 percent in the third quarter, the most since the end of 2001. The jump largely reflected car purchases spurred by the government's Cash for Clunkers program that offered a rebate of up to $4,500 to buy new cars and trade in old gas guzzlers.
The housing market also turned a corner in the summer. Spending on housing projects jumped at an annualized pace of 23.4 percent, the largest jump since 1986. It was the first time since the end of 2005 that spending on housing was positive.
The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires on Nov. 30.
The collapse of the housing market led the country into the recession. Rotten mortgage securities spiraled into a banking crisis. Home foreclosures surged. The sector's return to good health is a crucial ingredient to a sustained economic recovery.
A top concern is whether the economy can continue to stand on its own feet after government supports are gone.
Many economists predict economic activity won't grow as much in the months ahead as the bracing impact of President Barack Obama's $787 billion package of increased government spending and tax cuts fades.
The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.
Christina Romer, Obama's top economist, in remarks last week said the government's stimulus spending already had its biggest impact and probably won't contribute to significant growth next year.
Brisk spending by the federal government played into the third-quarter turnaround. Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter.
In other encouraging developments, businesses boosted spending on equipment and software at a 1.1 percent pace in the third quarter, the first increase in nearly two years.
Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.
Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will led to factories boosting production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months.
Even with the third-quarter improvement, the economy isn't out of the woods yet.
Federal Reserve Chairman Ben Bernanke and members of Obama's economics team have warned that the nascent recovery won't be robust enough to prevent the unemployment rate - now at a 26-year high of 9.8 percent - from rising into next year.
Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.
With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained in the months ahead. That would put a much heavier burden on America's businesses to keep the recovery going.
To foster the recovery, the Fed is expected to keep a key bank lending rate at record low near zero when it meets next week and probably will hold it there into next year.
With the economy on the mend, the Fed has slowed down some key emergency support programs but doesn't want to pull the plug until the recovery is on firm footing.
Even if the economy climbs back into positive territory in the third quarter, it will be up to another group to declare the recession over. The National Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually makes it determinations well after the fact.
Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
It also marked the first increase since the spring of 2008, when the economy experienced a short-lived uptick in growth.
The third-quarter's performance - the strongest since right before the country fell into recession in December 2007 - was slightly better than the 3.3 percent growth rate economists expected.
Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes.
Consumer spending on big-ticket manufactured goods soared at an annualized rate of 22.3 percent in the third quarter, the most since the end of 2001. The jump largely reflected car purchases spurred by the government's Cash for Clunkers program that offered a rebate of up to $4,500 to buy new cars and trade in old gas guzzlers.
The housing market also turned a corner in the summer. Spending on housing projects jumped at an annualized pace of 23.4 percent, the largest jump since 1986. It was the first time since the end of 2005 that spending on housing was positive.
The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires on Nov. 30.
The collapse of the housing market led the country into the recession. Rotten mortgage securities spiraled into a banking crisis. Home foreclosures surged. The sector's return to good health is a crucial ingredient to a sustained economic recovery.
A top concern is whether the economy can continue to stand on its own feet after government supports are gone.
Many economists predict economic activity won't grow as much in the months ahead as the bracing impact of President Barack Obama's $787 billion package of increased government spending and tax cuts fades.
The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.
Christina Romer, Obama's top economist, in remarks last week said the government's stimulus spending already had its biggest impact and probably won't contribute to significant growth next year.
Brisk spending by the federal government played into the third-quarter turnaround. Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter.
In other encouraging developments, businesses boosted spending on equipment and software at a 1.1 percent pace in the third quarter, the first increase in nearly two years.
Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.
Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will led to factories boosting production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months.
Even with the third-quarter improvement, the economy isn't out of the woods yet.
Federal Reserve Chairman Ben Bernanke and members of Obama's economics team have warned that the nascent recovery won't be robust enough to prevent the unemployment rate - now at a 26-year high of 9.8 percent - from rising into next year.
Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.
With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained in the months ahead. That would put a much heavier burden on America's businesses to keep the recovery going.
To foster the recovery, the Fed is expected to keep a key bank lending rate at record low near zero when it meets next week and probably will hold it there into next year.
With the economy on the mend, the Fed has slowed down some key emergency support programs but doesn't want to pull the plug until the recovery is on firm footing.
Even if the economy climbs back into positive territory in the third quarter, it will be up to another group to declare the recession over. The National Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually makes it determinations well after the fact.
Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health bill?
Fed stalls on Chinese bank deal, costs taxpayers $1.7 billion
Dell in a handbasket: Should founder Michael Dell resign?
Reader Comments (Page 1 of 3)
10-29-2009 @ 12:36PM
knute9 said...
Our economic data is becoming as reliable as China's controlled state media.
Reply
10-29-2009 @ 4:42PM
george said...
Correct. Unemployment figures in the U.S.A. do not count people whose benefits have stopped or partial employment. In europe they are counted. The inflation number does not count food and energy which are used daily by all.
10-29-2009 @ 9:06AM
Paul Patriot said...
This is wonderful news! Now we can start to buy cheap crap made from China again so that their economy gets healthier. Unfortunately all of this growth is fueled by government spending and not true consumer spending.
We the consumer are completely tapped out. I Know I Know the job loss rate has dropped ever so slighly after 2 and 1/2 years of increasing job loss. But still all and all those people out of work dont really matter in the big picture of ammassing wealth. What matters is how many suckers from foreign countries will spend their money buying up US assetts.
Reply
10-29-2009 @ 9:09AM
07 Shelby said...
If it wasn't for the gov dumping money in to the cash for clunkers deal and bailing out wall street, banks trippling interest rates like they have been doing, there would be no rise in GDP. This is just an artificial blip and will not continue. Lets see what next quarter is like when there is no bailouts to be had. We won't even bring up that GM and Chrysler is poised to close almost 4000 car dealerships and factories that will directly unemploy in excess of 400,000 people after the begining of the year. 7Million mortgages will reset next year that will spark off higher foreclosures and bankruptcies. If you think we are in a recovery you are stupid! Next year the banks can't pad the bottom line by boosting interest rates like they did this last quarter. They won't be able to lift the GDP on bogus earnings reports. Look for GDP to drop the next two quarters of next year because there is no way this can be sustained. With people not spending money because of the jobs situation, consumer spending will go down. Commercial real estate is already droping like a lead balloon. Residential real estate is droping and only foreclosures are selling at firesale prices. In the last three months, I have seen home prices depreciate 60K where I live in Va Beach. In Murtle beach, condos that were celling in the low 200K range are now selling at 100K. People are losing money left and right so how does the gov think people are going to start spending again? I see a finacial tidalwave coming and will make this year look like paridise compared to what has yet to come. Look for 12% unemployment next year and then when it happens, ask yourself if we are in a recovery!
Reply
10-29-2009 @ 9:12AM
Larry said...
If you thank this is real I have some land in the swamp I would like to sale.
Reply
10-29-2009 @ 9:11AM
Mike said...
Oh boy, here we go. Watch headlines tomorrow. RECESSION OVER!!! Take away all the Monopoly money...there's is no growth. This is going to lure people into a very, very false sense of security.
Reply
10-29-2009 @ 9:15AM
07 Shelby said...
What dip in unemployment? With over 500K new claims a week there is no dip! The only dip is in the amount of people still recieving benefits and are dropping off the unemployment rolls. Has nothing to do with true unemployment! The way things are going, we will have 1% unemployment because when every other business goes bankrupt, there won't be anyone else left to fire!
Reply
10-29-2009 @ 9:14AM
Alan said...
Your a Dick!!!!!!!
And get a life and come out from behind the rock!
Reply
10-29-2009 @ 9:18AM
stan said...
This is not real growth in real terms. It voodoo growth spun by having the government spend tax dollars to supposedly prevent the 2nd great depression. The problem is that it has created an artificial up tick in GDP but at what cost. In a couple of years inflation is going to go wild. Poor jobs are being created and better jobs are going overseas. The overall feeling in the country is depressive. But this news give Wall Street another chance to fleese the less educated working public. Watch for all the positive spins today and Friday. Another chance to Pump and Dump.
Reply
10-29-2009 @ 9:19AM
Alan said...
I can't believe that this story is on this quasi moronic site.
It should be on the Disney site.!
Our economy is still in the crapper and will remain so as long as our government thinks it's the world's big brother.
We are sending $$$ to other countries at the same time we have homeless and starving children here.
Our elected officials only care about their next election period!
Reply
10-29-2009 @ 9:19AM
FOXYLYNX said...
THIS ADMINISTRATION HAS DONE ABSOLUTELY NOTHING FOR SMALL BUSINESS - ON THE CONTRARY. JUST WAIT TILL INFLATION KICKS IN. WE ARE ALL GOING TO FEEL THE PAIN. CAP AND TRADE AND HEALTHCARE ARE NOT FRIENDLY TO BUSINESS LARGE AND SMALL AND CERTAINLY NOT TO THE AVG AMERICAN. MY OUT LOOK IS NOT NEARLY AS ROSY AS THE HEADLINES.
Reply
10-29-2009 @ 9:22AM
fpeirce said...
Yeah, right - everything's just peachy. I can't wait until Mr. Hope and Change and his allies in Congress get health care fixed and institute cap and trade. Just imagine how much better everything will be then!!!!!! I guess I'm just imagining that double digit unemployment & foreclosures still on the rise (yesterday's AOL headline) also mean that life is good. Doesn't anyone at AOL ever try to read the drivel before putting it out there as "news"?
Reply
10-29-2009 @ 9:25AM
Bothepro24 said...
Growth=Government spending our tax dollars, where the hell is my job? What crap. I hope to god that people come out of the closet and start to vote. Each and every one of our "Rock Star" politicians, who don't represent those that elected them must now be turned out to pasture. While we can talk, we are becoming more like China everyday. Those in Washington think that we won't do anything to make the changes necessary. If you like what is happening then stay in your shell, if your not, we better speak out. The coup d'etat that Obama is leading is bloodless and will be complete if we don't speak out and vote out both the Democrats and Republicans who are locked in their Ivory Towers.
Reply
10-29-2009 @ 9:31AM
just4you said...
Republicans just hate good news.. they can just go ____ themselfs
Reply
10-29-2009 @ 9:34AM
JohnM said...
This article is written by an idiot. Who bele4ives this nonsense.
Reply
10-29-2009 @ 9:36AM
Roman Haas said...
1. National Debt $11,700,000,000
2. Unfunded Liabilites
(SS, Medicare, Pensions, etc) 57,000,000,000
3 Annual Trade Deficit 1,000,000,000
4. Losses in Home Equity
(last 3 years) 12,000,000,000
5.Stock Market Losses
(last 3 years) 7,000,000,000
6.Real Unemployment % 13
7.Bank and Investment Bank
Bailouts 1,700,000,000
8.Bailouts for Desperate Homeowners 0
9.Bailouts for Small Businesses 0
10. Congressional Junket days
out of the USA 8,500
11. Daily Home Foreclosures 10,000
12. Retail Store Vacancies % 17 1/2
13. Commercial Real Estate Defaults60,000,000,000
14.Biggest Lie On October 29,2009 +3 1/2 GDP
Reply
10-29-2009 @ 9:38AM
Jim said...
When you consider that the government infused $2.0 Billion in the cars for clunkers program that would be 445,000 cars sold at an average price of $30,000 equals $13,350 Trillion in sales, that could have skewed this writers numbers a little bit. What do you think? Do these people do any research or just write whatever the government tells them to write.
Anyone read 1984, it is time to re-read it.
Reply
10-29-2009 @ 10:09AM
grothad said...
Yes,Jim I have read 1984 in high school some 20 years ago, i think that is one of the books that have been band from reading in highschool for deraugatory remarks or slander. The book is so true today. Also Karl Marx would be quite happy with this country today, his belief our coming true.
10-29-2009 @ 9:39AM
RJ said...
This is one of the most idiotic spew of lies, smoke and mirror articles I have read so far. I guess this writer will be picking his paycheck up at the White House this week.
Reply
10-29-2009 @ 9:40AM
RICH PERRY said...
this is a ploy to think we are on or way back, the only reason it shows a small improvement is because they r pouring OUR money in the market,clunkers false economy , 50% of the cars purchased will be repossed in a year, they think we are all stupid---not a chance , in 2010 they will start to c the results of there idiotic ideas, and then we will take our country back in 2012.........
Reply