US third-quarter growth revised down to 2.8%
Posted: 24 November 2009 2348 hrs

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WASHINGTON: US economic growth in the third quarter was slower than initially estimated, the Commerce Department said on Tuesday in cutting its estimate to a 2.8 percent annual pace of expansion.

The gross domestic product (GDP) figure was revised down from last month's estimate of 3.5 percent growth, but was in line with most analyst forecasts, taking into account updated data, notably on consumer spending and trade.

Despite the downward revision, the report showed the first expansion for the economy after four straight quarters of contraction, including a 0.7 percent drop in the second quarter.

The data from the July-September period show the world's biggest economy appearing to emerge from its brutal recession, but with less momentum than previously thought.

Sal Guatieri, economist at BMO Capital Markets, said the revised figure does little to change his outlook for steady if less than spectacular growth.

"We still think the economy will expand at a three percent annual rate in the fourth quarter," he said.

"We're looking for modest growth in 2010 of about 2.5 percent."

Guatieri said the data showed a larger drawdown in business inventories, which suggests companies will have to produce more in the coming months to boost their stocks of supplies.

"Less momentum in consumer spending is offset by a bigger boost from inventories," he said.

The government's third quarter report showed personal consumption expenditures - the main driver of economic activity - increased 2.9 percent in the quarter, revised down from an estimate last month of 3.4 percent.

Even though consumer spending rose, a large portion of that came from the auto sector, with sales boosted by the "cash for clunkers" incentives to trade in older vehicles.

The revised figures showed exports of goods and services increased 17.0 percent in the third quarter, but imports grew at a faster pace of 20.8 percent, a factor that hurts GDP.

Other segments of the economy remained weak, with business investment down 4.1 percent.

But the housing sector emerged from its slump, with residential fixed investment jumping 19.5 percent, in contrast to a plunge of 23.3 percent in the second quarter.

The report also showed corporate profits up 130.0 billion dollars in the third quarter.

Augustine Faucher at Moody's Economy.com said this was a jump of 10.6 percent at an annualised rate, and added, "this bodes well for near-term hiring and investment."

Faucher said the latest report "points toward continued economic expansion in the near term, but with growth that is below the economy's potential."

"Certainly the deep downturn in consumer spending is over, which is contributing to a recovery," he added.

"Fiscal and monetary stimulus are boosting demand."

Most economists say the US recovery from its worst recession in decades appears to be on track, but could be derailed by rising joblessness. The unemployment rate hit a 26-year high of 10.2 percent in October, with a net loss of 190,000 jobs.

A separate survey on Tuesday showed US consumer confidence rose slightly in November after two months of declines.

The Conference Board said its consumer confidence index rose to 49.5 from an upwardly revised 48.7 in October.

"The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labour market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve," Lynn Franco, Conference Board research director, said in a statement.

Although many economists say the US recession is over, an official declaration has yet to come from the private National Bureau of Economic Research, seen as the official arbiter of business cycles.

The NBER panel does not use the definition employed in many countries of recession as two consecutive quarters of declining GDP. It says a recession is "a significant decline in economic activity spread across the economy," with drops in output, income, employment and sales. - AFP/de