U.S. Third-Quarter Growth Revised Down to 2.2%

Dec. 22, 2009
Latest GDP figures indicate the economic recovery has been weaker than anticipated.

The U.S. economy limped forward at a 2.2% pace in the third quarter, according to government figures Tuesday that showed a downward revision of the gross domestic product (GDP).

The downward revision from last month's estimate of 2.8% growth came primarily from a weaker contribution from business investment, as well as slightly slower consumer spending growth.

The report nonetheless confirms that the world's biggest economy swung back to growth in the July-September period after four quarters of contraction in the worst recession in decades.

The Commerce Department revision indicates the economy's momentum in the third quarter was weaker than anticipated, suggesting that the recovery from recession may be tepid.

"The recovery is underway, but this does raise concerns about its strength and the prospects for a turnaround in the labor market," said Augustine Faucher at Moody's Economy.com. "The next few quarters will be rough. The economy will expand, but weakly. The boost from fiscal stimulus is fading, the hangover from 'Cash for Clunkers' will weigh on vehicle sales, and consumers and businesses remain wary."

The report showed manufacturing helping lift the economy, especially in the auto sector, where the Cash for Clunkers incentives program boosted sales into August.

Motor vehicle output accounted for 1.45 percentage points of GDP in the quarter.

Scott Brown, chief economist at Raymond James & Associates, said the report was "a bit disappointing" and suggests "that underlying domestic demand is pretty soft."

Brown said he expects a jump in growth to at least 4% in the current fourth quarter, but added that much of that will come from restocking of business inventories drawn down in the recession.

It'll Be a While 'Before We're Firing on All Cylinders'

Looking at 2010, Brown said the economy may grow at around 3%, "which is good by historical standard but not enough to bring the unemployment rate down substantially."

"It's going to take a long time before we're firing on all cylinders," he added.

The third-quarter GDP report showed business investment grew at a 5% pace, revised down from an earlier estimate of 8.4%. Consumer spending, which accounts for the lion's share of economic activity, was revised to show growth of 2.8% instead of 2.9%.

Federal government expenditures were up 8% in the quarter, but state and local government spending fell 0.6%.

The GDP report was the final revision after two earlier estimates, the first of which showed a surprising 3.5% pace of growth. This was cut twice based on more complete data for the end of the quarter.

Robert Brusca at FAO Economics said the report confirms the economy is on the mend: "This setback is merely postponing the growth impact for another day."

Although some sectors were revised lower, Brusca said "still it is a positive rate of growth and represents a nearly 3-point acceleration from the second-quarter rate of growth. And, most importantly, the recovery game is on."

Although many economists say the U.S. recession is over, an official declaration has yet to come from the private National Bureau of Economic Research (NBER), seen as the official arbiter of business cycles.

The NBER panel does not use the definition of recession employed in many countries as two consecutive quarters of declining GDP. It says a recession is "a significant decline in economic activity spread across the economy," with drops in output, income, employment and sales.

A separate report showed sales of U.S. existing homes surged 7.4% in November to the highest level since February 2007, as buyers rushed to take advantage of tax credits.

The National Association of Realtors said sales rose to a seasonally adjusted annual rate of 6.5 million units in November from 6.1 million in October.

The gains in home sales suggest a recovery in the sector at the epicenter of the global financial crisis, where a housing boom followed by a meltdown led to trillions of dollars in losses and led to a worldwide recession.

Copyright Agence France-Presse, 2009

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