Spokane7
62°
November 24, 2009 in Business, Nation/World
Economy’s rebound not as strong as first thought
WASHINGTON — The economy is growing modestly, with consumers too wary about spending to invigorate the recovery.
That was the picture that emerged Tuesday from reports on the nation’s economy and the confidence of consumers, who power 70 percent of it. The economy grew at a 2.8 percent rate last quarter — less than originally estimated. And forecasts for the current quarter are for similarly slight growth before a drop-off next year.
The main reasons are that consumers remain reluctant to spend, commercial construction has slipped and imports are dampening U.S. growth.
The Commerce Department’s new reading on gross domestic product was weaker than the 3.5 percent growth rate for the July-September period estimated just a month ago. The GDP, which measures the value of all goods and services produced in the United States, also was a tad weaker than the 2.9 percent growth rate that economists surveyed by Thomson Reuters had expected.
At the same time, the Conference Board’s latest survey of consumer confidence found that as retailers enter the crucial holiday season, shoppers remain gloomy. Unemployment and tight credit have sapped consumers’ willingness and ability to spend freely.
Also Tuesday, the Standard & Poor’s/Case-Shiller home price index of 20 major cities suggested that the housing market’s recovery is continuing, if only gradually. Home prices rose slightly in September. Compared with a year earlier, though, they remain down 9.4 percent.
The lackluster reading on economic growth and consumer confidence caused stocks to retreat from their 13-month highs. The Dow Jones industrial and other stock averages were down slightly in late-morning trading.
The good news is that the economy finally started to grow again after a record four straight losing quarters. The bad news is that the rebound, now and in the months ahead, probably will be lethargic. The worst recession since the 1930s is very likely over, but the economy’s return to good health will take time, Fed officials and economists say.
Growth probably won’t be strong enough to quickly drive down the nation’s unemployment rate, currently at 10.2 percent. Some analysts think it could climb as high as 11 percent by the middle of next year before making a slow descent. It could take at least four years for the unemployment rate to drop back down to more normal levels.
For the current quarter, some economists think economic growth will slow to around a 2.5 percent pace, though others say it could reach 3 percent if holiday sales turn out better than expected.
Most say they think the economy will weaken again next year, with growth at a pace of around 1 percent as the impact of the $787 billion stimulus package fades and consumers keep tightening their belts under the strain of high unemployment and hard-to-get credit.
At the same time, the stock market has risen sharply in recent months. A rally on Monday carried the Dow up 133 points to its highest point in just over a year.
In part, stocks have been powered by a weak dollar and low interest rates. Lower rates let companies and investors borrow cheaply. They also cause some to shift money out of cash and bonds and into investments that promise higher returns, such as stocks.
Stocks also have benefited from higher corporate profits. Companies have managed to squeeze out higher profits without the cost of higher production or payrolls. They’ve done so by boosting their workers’ productivity and drawing down their existing stockpiles of goods.
Much of the economy’s return to growth last quarter reflected federal support for spending on homes and cars.
But Tuesday’s report shows that some of that spending was a bit less robust than initially thought.
Spending on homes and other residential projects soared at an annualized pace of 19.5 percent last quarter, a little slower than the 23.4 percent rate first estimated. Spending on big-ticket “durable” goods — including cars — jumped at a pace of 20.1 percent, down from 22.3 percent.
Even with the downward revisions, it was notable that such spending grew, after falling in the previous quarter.
In the third quarter, the popular Cash for Clunkers rebates and an $8,000 tax credit for first-time homebuyers juiced up sales of cars and homes. The clunkers program ended in August, but the tax credit has been extended and expanded beyond first-time buyers.
What’s not clear is whether the recovery can continue after government supports are gone. If consumers clam up, the economy could tip back into recession.
Tuesday’s report showed that overall consumer spending grew at a pace of 2.9 percent last quarter. That was down from a 3.4 percent growth rate first estimated, though it marked the best showing since early 2007.
On the business side, companies cut back spending on commercial construction — a weak spot in the economy — at 15.1 percent annualized pace. That was deeper than the 9 percent annualized cut back first estimated.
Businesses also trimmed stockpiles of goods by $133.4 billion last quarter, slightly more than initially estimated.
And the nation’s trade deficit ended up shaving 0.83 percentage point off GDP last quarter, more than first thought.
Unlike past rebounds that were driven by the spending of everyday Americans, this one appears to hinge on spending by businesses, foreigners and — until it runs out — the government. And in an encouraging note, businesses after-tax profits grew at a 13.4 percent pace last quarter, up from a 0.9 percent pace in the prior period, Tuesday’s report showed.
The government makes three estimates of economic activity for any given quarter. Each is based on more complete data. Tuesday’s was the second reading of the third-quarter GDP data.
© Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Life and debt 
PhiltheBibliophil on November 24 at 9:04 a.m.
I doubt that anyone “polled” anyone in Spokane. Because consumer confidence does not seem to be returning in any segment of the economy here. In fact, its getting worse! To be confident, you have to have a sustainable future for a period of time. Nothing on the horizon in America is strong enough to emit that kind of confidence.
Rifleman__Dodd on November 24 at 9:48 a.m.
What a bunch of jabberwocky. How does one know how high the basket ball bounces, till it does?
Ok so your standing in a deep deep hole, how do you dig yourself out if it and at the same time they are pouring quicksand into it?
There will have to be one heap big miracle to get us ouf of this one. No one has any money that can be taxed to give to the ones whom have no money. Then only answer is to print more paper money and hope that people get jobs before the inflation hits from printing all that paper money.
We are screwed. Thanks Bush Clown.
al on November 24 at 11:12 a.m.
The headline is understated. You think you’re screwed now, wait till the interest rate is raised. The middle class pays for this both ways. Great article in the NYTimes today, following Paul Krugman’s of yesterday.
maynard on November 24 at 11:18 a.m.
Okay here is my take on this….the economy is not growing and it wont grow until people start working again. I saw reports over the weekend that congress was grilling the Treasury secretary over why the economy is not improving and why no new jobs are being created.
Our representitives in congress should not be griling someone who has no power to control job growth; instead those deadbeats should be grilling Corporate America - that’s right talk to those idiots who created this mess. Ask them why they are not hiring. They need to understand and should know that once Corporate America starts hiring people; we will spend again and the economy will get back to normal.
I mean even a thid grader can understand this. Geez!!!
IHike4Fun on November 24 at 11:58 a.m.
some estimates put the jobless rate over 17%. That might have something to do with consumer confidence since 1 in 5 can’t consume much of anything.
http://www.cnbc.com/id/34040009
empyrius on November 24 at 12:58 p.m.
I am somewhat surprised they have not started another war yet with all of this “excess” population looking around for jobs that have been outsourced to all the 3rd world nations that shall never return . . .
Well, I am confident they are building more prisons anyway!
Orange on November 24 at 2:25 p.m.
Blame the import woes on Clinton and NAFTA. Dems did it to themselves, not the American consumer.
Fixer on November 24 at 3:13 p.m.
Business after-tax profits are up. They’ll use what’s left of that money to start hiring - as soon as executive compensations are paid.
@ Orange -
The top three countries with which the U.S. has a trade deficit are China, Mexico and Japan, in that order. Two of those countries aren’t in North America. And, our trade deficit with China is more than twice that of Mexico and Japan combined.
Orange on November 24 at 3:40 p.m.
78% of the net job losses under NAFTA, 686,700 jobs, were relatively-high paying manufacturing jobs.
Certain states with heavy emphasis on manufacturing industries like Michigan, Ohio, Pennsylvania, Indiana, and California were significantly affected by these job losses. For example, in Ohio, TAA and NAFTA-TAA identified 14,653 jobs directly lost due to NAFTA-related reasons like relocation of U.S. firms to Mexico.
Similarly, in Pennsylvania, Keystone Research Center attributed 150,000 job losses in the state to the rising U.S. trade deficit.
Since 1993, 38,325 of those job losses are directly related to trade with Mexico and Canada. Opponents point out the fact that although most of these jobs were reallocated to other sectors, the majority of workers were relocated to the service industry, where average wages are 4/5 to that of the manufacturing sector. Meaning less money to our consumer driven workforce.
bnblair on November 24 at 3:56 p.m.
Why do I get the feeling that the people complaining about NAFTA are the same people that go to Wal-Mart and buy all the cheap imported crap?