U.S. economy rebounds in third quarter after four consecutive quarters of contraction

Xinhua.com
The U.S. economy rose at a pace of 3.5 percent in the third quarter after four consecutive quarters of contraction, according to official data released Thursday, providing the strongest signal yet that the worst recession since the 1930s has ended.

The Commerce Department's advance estimate of real gross domestic product (GDP) -- the output of goods and services produced by labor and property located in the United States -- in the third quarter exceeded economists' expectations of 3.3 percent.

In the first two quarters of 2009, the U.S. real GDP decreased 6.4 percent and 0.7 percent, respectively. In the third and fourth quarters of 2008, the economy contracted 2.7 percent and 5.4 percent.

"After four consecutive quarters of decline, positive GDP growth is an encouraging sign that the U.S. economy is moving in the right direction." the White House said in a statement.

The department said that the increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment.

Real personal consumption expenditures increased 3.4 percent in the third quarter, compared to a 0.9 percent decline in the second.

Consumer spending on durable goods -- items expected to last more than three years -- soared at an annualized rate of 22.3 percent in the July-September period, the biggest rise since the end of 2001.

The jump largely reflected car purchases driven by the government's Cash for Clunkers program, which offered a rebate of up to 4,500 U.S. dollars to buy new cars and trade in old gas guzzlers.

Exports of goods and services increased 14.7 percent in the third quarter, in contrast to a decrease of 4.1 percent in the second.

The change in real private inventories added 0.94 percentage point to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change.

Federal government spending, which rose at a rate of 7.9 percent in the third quarter, also made a significant contribution to the economic turnaround.

The housing market also showed positive signs during the summer. Spending on housing projects surged at an annualized pace of 23.4 percent, the largest jump since 1986.

The Commerce Department emphasized that the third-quarter advance estimate released Thursday was based on source data that were incomplete or subject to further revision by the source agency.

The "second" estimate for the third quarter, based on more complete data, will be released on Nov. 24, 2009.

Although the economy returned to growth, economists said the recovery remained nascent and fragile.

Federal Reserve (Fed) Chairman Ben Bernanke and members of U.S. President Barack Obama's economics team have warned the recovery would not be robust enough to prevent the unemployment rate – now at a 26-year high of 9.8 percent -- from rising into next year.

Many economists expected the unemployment rate would keep above9 percent in 2010 before reaching double digit level.

Obama said earlier that the recovery was not real unless the job market recovered.

"This welcome milestone (growth in the third quarter) is just another step, and we still have a long road to travel until the economy is fully recovered," the White House statement said. "It will take sustained, robust GDP growth to bring the unemployment rate down substantially. Such a decline in unemployment is, of course, what we are all working to achieve."

Other experts worried that the recovery was mainly driven by the government's stimulus package and might not be sustainable when the stimulus policies fell off.

The Obama Administration launched a 787-billion-dollar stimulus package in February. But some of the policies have expired or will expire soon.

After the popular Cash for Clunkers program came to an end in August, U.S. auto sales fell accordingly.

The Commerce Department reported Wednesday that U.S. new home sales decreased at an unexpectedly high annual rate of 3.6 percent in September.

As the government-supported 8,000-dollar tax credit program for first-time home buyers will expire on Nov. 30, home builders worry that they will have trouble selling their homes without the incentive.

To foster the recovery, the Fed is expected to keep its key bank lending rate at record low of near zero when it meets next week and probably will hold it there into next year.

However, economists were concerned that the measures would plant the seeds of another asset bubble if the central bank kept the interest rate at too low a level for too long.