Economy in U.S. Probably Shook Off Recession in Third Quarter

Economy in U.S. Probably Shook Off Recession in Third Quarter


Oct. 29 (Bloomberg) -- The U.S. economy probably grew in the third quarter for the first time in more than a year, driven by gains in consumer and government spending that have failed to reduce unemployment.

The world’s largest economy expanded at a 3.2 percent annual pace from July through September after shrinking in the previous four quarters, according to the median estimate of 79 economists surveyed by Bloomberg News. Household purchases likely rose by the most since the first three months of 2007.

Policy makers will now focus on whether the recovery, buoyed by federal assistance to the housing and auto industries, can be sustained into next year and create jobs. The record $1.4 trillion budget deficit limits President Barack Obama’s ability to provide further stimulus, while Federal Reserve officials are trying to convince investors that the central bank will exit emergency programs in time to prevent a pickup in inflation.

“At this stage the numbers are just going to tell you the recession is over, and now the argument is going to center on the speed of the recovery,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “There will be a lot of naysayers after the numbers because ‘cash for clunkers’ did figure prominently in the quarter’s bounce back.”

The Commerce Department’s report on gross domestic product is due at 8:30 a.m. in Washington. The economy shrank 3.8 percent in the 12 months to June, the worst performance in seven decades.

Consumers Spend

Consumer spending, which comprises about 70 percent of the economy, probably rose last quarter at a 3.1 percent annual rate from the previous three months, the report may show according to the survey median.

Much of the boost in purchases was provided by the administration’s auto-incentive program known as cash for clunkers, which offered buyers payments of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan, which ended in August, boosted sales by about 700,000 vehicles, according to a Transportation Department estimate.

The improving global economy helped companies from Amazon.com 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. The S&P 500 closed at a one-year high on Oct. 19.

Fewer Stockpiles

Growing demand caused inventories to keep falling, which may prompt companies to ramp up production in the coming months and contribute to growth. The drawdown will restrain today’s GDP numbers, economists said.

Orders for durable goods rose 1 percent in September, the Commerce Department said yesterday. The gain was the fourth in the last six months and indicates companies are planning to invest in new equipment.

“You should see more expansion in the categories we’re in, as well as more geographical expansion over time,” Chief Financial Officer Thomas Szkutak of Amazon.com, the world’s largest Internet retailer, said on an Oct. 22 conference call.

The White House’s Council of Economic Advisers estimates the stimulus program, signed into law by President Obama in February, boosted economic growth by 2 percentage points to 3 percentage points in the second quarter, by 3 points to 4 points last quarter and has prevented payrolls from falling even more.

Mounting Unemployment

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 and slowed to 201,000 in August before accelerating again last month.

A report today from the Labor Department, also at 8:30 a.m., may show the number of Americans filing for jobless benefits decreased to 523,000 last week from 531,000 a week earlier, according to the median estimate in a Bloomberg survey.

The economy will likely grow at a 2.4 percent annual rate from October through December, the median forecast in a survey earlier this month showed. GDP will also grow 2.4 percent next year and 2.8 percent in 2011, the survey showed, compared with an average of 3.4 percent growth over the past six decades.

bloomberg