US Economy Expands for First Time in a Year

The U.S. economy grew in the third quarter for the first time in more than a year, propelled by stimulus-driven gains in consumer spending and home building.

The world’s largest economy expanded at a 3.5 percent pace from July through September, after shrinking the previous four quarters, figures from the Commerce Department showed. Household purchases climbed 3.4 percent, the most in more than two years.

Policy makers will now focus on whether the recovery, supported by federal assistance to the housing and auto industries, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit limits President Barack Obama’s options for more aid, while Federal Reserve officials try to convince investors that the central bank will exit emergency programs in time to prevent a pickup in inflation.

The economy shrank 3.8 percent in the 12 months to June, the worst performance in seven decades. The four consecutive decreases through the second quarter marks the longest stretch of declines since quarterly records began in 1947.

The gain in consumer spending, which accounts for about 70 percent of the economy, largely reflected” an increase in purchases of automobiles attributable to the administration’s cash-for-clunkers” plan, the report said. The 22 percent jump in purchases of durable goods, which includes autos, was the biggest since 2001. Total purchases were forecast to climb 3.1 percent, according to the survey median.

Excluding the influence of auto sales, production and inventories, the economy grew 1.9 percent last quarter.

Residential construction jumped at a 23 percent annual rate last quarter, the first gain in almost four years and the biggest since 1986. The rebound added 0.5 percentage point to growth.

Homebuilding rebounded as sales climbed, propelled in part by an $8,000 tax credit for first-time buyers and Fed purchases of mortgage-backed securities that helped lower borrowing costs.

Total inventories last quarter continued to drop, boosting expectations that factory production will keep growing. The drop in stockpiles was smaller than the record decrease in the second quarter, contributing to growth, today’s report showed.

Trade subtracted from GDP as imports grew faster than exports, while government spending expanded at a 2.3 percent pace after jumping 6.7 percent in the prior quarter. A decline in state and local government outlays limited the overall increase.

The improving global economy helped companies from Inc. to Whirlpool Corp. exceed analysts’ sales estimates last quarter. Profits at about 85 percent of the companies in the Standard & Poor’s 500 Index that have released results beat expectations, according to Bloomberg data. That marks the highest proportion in records going back to 1993.

In September, the unemployment rate reached a 26-year high of 9.8 percent, up from 7.6 percent from when Obama took office in January, figures from the Labor Department show. Economists project the jobless rate will exceed 10 percent by early 2010.

Since the recession began in December 2007, the U.S. has lost 7.2 million jobs. Payroll cuts peaked at 741,000 in January before falling to 263,000 job losses in September.


US Economy Expands for First Time in a Year, Bloomberg
10/29/2009 9:05:18 AM