Economic growth slightly faster than first thought

Filed under: Daily News | Tags:,

The economy grew slightly faster last summer than first thought, benefiting from stronger spending by U.S. shoppers and improved overseas sales of U.S. goods.

The Commerce Department reported Tuesday that the economy expanded at a 2.5 percent annual rate in the July-September quarter. That was better than the 2 percent pace initially estimated last month.

The pickup in growth comes after the economy slowed sharply in the spring, advancing at an anemic rate of just 1.7 percent. Still, the economy would need to grow at least twice as fast as it did in the third quarter to make a dent in the 9.6 percent unemployment rate.

That’s why the Fed recently jumped in with a second round of stimulus. The Fed announced Nov. 3 that it will buy $600 billion worth of government bonds.

The effort is aimed at getting Americans to spend more by making loans cheaper and by boosting stock prices. But no one – including Fed Chairman Ben Bernanke – thinks the program would create the robust growth needed to ratchet down the unemployment rate.

In the third quarter, consumers boosted their spending at a 2.8 percent pace, the most in nearly four years. That was a stronger showing than the 2.6 percent pace first estimated.

Even with the improvement, consumers would need to spend more to have a significant impact on the jobs market. That’s because consumer spending accounts for roughly 70 percent of all national economic. It’s the single-largest driver of economic activity.

Sales of U.S. exports to foreign customers grew at a 6.3 percent pace in the third quarter, another factor in the third-quarter bump-up. That compared with a 5 percent growth rate first estimated. A weaker value of the U.S. dollar is helping those sales. The falling dollar makes U.S. goods cheaper – and thus more attractive – to foreign buyers.

Business spending on equipment and software also turned out to be stronger. It grew at a 16.8 percent pace, compared with a 12 percent growth rate first estimated. And spending by state and local governments nudged up at a 0.8 percent rate, another factor in the upward revision. The government first estimated that such spending dipped by 0.2 percent.

The housing market, which led the country, into recession, remains a weight on the economy. Builders slashed spending on housing projects at a pace of nearly 28 percent.

Tuesday’s report also showed that growth in companies after-tax profits slowed in the third quarter. Profits increased at a1 percent pace, compared with a 3.9 percent pace in the second quarter.

Looking ahead, analysts see the economy mired in a rut of slow growth and high unemployment.

Leading economists polled in a recent AP Economy Survey predict the economy will expand at a 2.4 percent pace in the October-December period. Growth would only be a tad better – logging a 2.5 percent – in the first three months of 2011, according to the AP survey.

Under one rule of thumb, the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point. But for all of this year, the economy is expected to expand 2.6 percent.

Faced with such a weak outlook, Bernanke didn’t think the central bank could afford sitting back and not doing something to invigorate the economy,

Still, China, Brazil, Germany and other countries are irked by the Fed’s bond-purchase plan. They have complained that is intended to further drive down the value of the U.S. dollar, giving U.S. exporters a competitive advantage over their foreign rivals. And Republican economists and lawmakers have criticized the move, saying it could lead to runaway inflation. Bernanke has vigorously rejected such criticism.

The government provides a total of three estimates of gross domestic product for any given quarter. GDP measures the value of all goods and services – from machinery to manicures – produced within the United States. Each new reading is based on more complete information.