US economy grows in 3Q, unofficially ends recession

Written by Reuters
Thursday, 29 October 2009 21:32

WASHINGTON: The US economy grew in 3Q for the first time in a year as consumer spending and investment in new home-building rebounded, data on Oct 29 showed , unofficially ending the worst recession in 70 years.

The US Commerce Department, in its first estimate of 3Q GDP, said the economy grew at a 3.5% annual rate, the fastest pace since 3Q2007, after contracting 0.7% in the April to June period.

The growth pace in GDP, which measures total goods and services output within US borders, was above market expectations for a 3.3% rate. The economy last grew in 2Q2008.

Recessions in the US are dated by the National Bureau of Economic Research and the private-sector group often takes months to make determinations. The economy slipped into recession at the end of 2007 and has been in the worst downturn since the Great Depression of the 1930s.

The 3Q recovery was generally broad-based, with solid gains in consumer spending, exports and investment in home-CONSTRUCTION [].

Consumer spending, which accounts for over two-thirds of US economic activity, surged at a 3.4% rate in 3Q, the fastest advance since 1Q2007. Spending fell at a 0.9% rate in the previous quarter.

Residential investment, which was the main force behind the downturn, jumped at a 23.4% rate in 3Q, contributing to GDP for the first time since 2005, after declining 23.3% in the April to June period.

The surge in consumer spending and residential investment was likely driven by government stimulus programs.

The economic recovery in 3Q was also supported by a sharp moderation in the pace of inventory liquidation by business. Business inventories fell US$130.8 billion (RM448.6 billion), slowing from a record US$160.2 billion plunge in 2Q. The change in inventories added 0.94 percentage points to real GDP in 3Q.

Analysts are hoping that the slowdown in the inventory decline by businesses will continue to support the economy in 4Q, even as consumer spending is expected to retreat under the weight of the worst labour market in 26 years.

Excluding inventories, GDP rose at a 2.5% rate compared to a 0.7% increase in 2Q.

The weak US dollar boosted exports, but a rise in imports subtracted from real GDP during the quarter. Federal government spending contributed to growth, but both state and local governments were a drag.

Business investment fell at 2.5% pace, with investment nonresidential structures dropping 9%, a reflection of ongoing problems in the commercial property market. -- Reuters