US economy returned to growth in Q3

Thursday 29 October 2009 18.57
US economy - 'Long road ahead,' warns Obama
US economy - 'Long road ahead,' warns Obama

New figures show that the US economy grew in the third quarter of this year for the first time in a year as consumer spending and investment in new home-building rebounded. The figures unofficially ended the worst US recession in 70 years.

The Commerce Department, in its first estimate, said the economy grew at a 3.5% annual rate, the fastest pace since the third quarter of 2007, after contracting 0.7% in the April-June period.

The growth pace was above market expectations for a 3.3% rate. The economy last grew in the second quarter of 2008.

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.

US President Barack Obama said the figures showing a return to growth meant the recession was abating, but he warned that a long road to full economic recovery lay ahead. US Treasury Secretary Timothy Geithner also said the recesssion remained 'alive and acute' for people out of work and small businesses facing a credit crunch.

Spending and home-building boost economy

A breakdown of the growth figures showed that the Q3 recovery was generally broad-based, with solid gains in consumer spending, exports and investment in home-building.

Consumer spending, which accounts for over two-thirds of US economic activity, surged at a 3.4% rate in the third quarter, the fastest pace since the first quarter of 2007. Residential investment, which was the main force behind the downturn, jumped at a 23.4% annual rate in the third quarter, contributing to GDP for the first time since 2005, after declining 23.3% in the April-June period.

The surge in consumer spending and residential investment was likely to have been driven by government stimulus programmes.

The economic recovery in the third quarter was also supported by a sharp moderation n the pace of inventory liquidation by business. Business inventories fell $130.8 billion, slowing from a record $160.2 billion plunge in the second quarter.

Analysts are hoping that the slowdown in the inventory decline by businesses will continue to support the economy in the fourth quarter.

The weak 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 a 2.5% pace, with investment in non-residential building dropping 9%, a reflection of ongoing problems in the commercial property market.