Recession over: US grows 3.5 per cent in third quarter (2nd Roundup)

By Chris Cermak Oct 29, 2009, 15:52 GMT

A pedestrian walks past the Federal Reserve building in Washington, DC, USA. EPA/MATTHEW CAVANAUGH

Washington - The US economy grew a surprising 3.5 per cent in the third quarter of 2009, according to initial government estimates Thursday, likely ending the country's worst recession in decades.

The annualized gross domestic product (GDP) rate was higher than the 3.2 per cent that economists predicted for the summer months. It showed signs of 'real progress' in reviving the world's largest economy, President Barack Obama said.

The Commerce Department's estimate - the first of three - marks the largest three-month increase in two years and caps months of better news about the US economy, which had been mired since December 2007 in its worst recession since the Great Depression of the 1930s.

US stocks jumped more than 0.5 per cent in opening trading on Wall Street. The positive GDP figures come after the economy shrank 0.7 per cent in the previous quarter and a massive 6.4 per cent in the first three months of the year.

Other major economies had already managed a turnaround in the second quarter of this year: Germany, France and Japan all returned to growth in the spring.

Much of the new growth has been attributed to massive government spending efforts, including popular tax credits that boosted car and home sales. The Commerce Department said the quarter's improvement was led by rising consumer demand, increased company inventories, government spending and an uptick in the housing market.

'This is obviously welcome news and an affirmation that this recession is abating and the steps we've taken have made a difference,' Obama said, according to prepared remarks released from a speech he will give later Thursday in Washington. 'But I also know that we have a long way to go to fully restore our economy.'

Consumer spending, which accounts for about two-thirds of the US economy, jumped 3.4 per cent, the Commerce Department said. But trade dragged down the figures as imports climbed faster than exports.

The improvement also comes as the US financial and housing sectors are stabilizing. Most financial firms this month reported billions of dollars in profits - a year after their near collapse helped bring down the global economy.

Despite gains, the difficult times will likely continue for much of the population. Most economists expect a smaller GDP gain in the coming months as public spending begins to dry out.

Unemployment stood at 9.8 per cent in September, the highest rate in 28 years, and is widely expected to reach 10 per cent in 2010. The jobless rate has doubled since the recession began, as 7.6 million people have lost their jobs.

'The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well,' Obama said.

Obama's administration has credited the 787-billion-dollar stimulus package approved in February with helping to pull the economy out of its deep slump.

But some economists fear that government spending has pushed the US budget deficit to unsustainable levels, and warn that the country could experience another decline in growth when the stimulus funds run out in 2010.

Only about half of the stimulus money has been spent so far. Congress is currently debating extending some of its measures, including longer unemployment benefits and tax credits for home buyers.