DBJ... U.S. GDP up 2.5 percent

From Dayton Business Journal…

U.S. economy grew faster than expected

by Ron Trujillo

Wednesday, November 24, 2010

Consumer and government spending gave a larger-than-expected boost to the economy during the third quarter, with the gross domestic product increasing at the fastest rate in almost four years, according to the Commerce Department.

The U.S. GDP — a measure of all goods and services — improved at a revised annualized rate of 2.5 percent, compared to the previous estimate of 2 percent. The federal government revises the GDP three times per quarter.

It’s a much-appreciated boost, but one that will likely not lead to a dramatic decline in the jobless rate or help greatly power the still-sputtering economy. Many economists say the economy needs to grow at a 3.5 percent-plus clip in order to lower the national 9.6 percent unemployment rate.

"The labor market is still weak. Housing markets are still weak. Banking is still weak," said Dan Hamilton, director of economics at the Center for Economic Research at California Lutheran University in Thousand Oaks. "Unless you live in the Rocky Mountain states, it does not feel like a recovery."

The better-than-expected GDP performance was attributed to more consumer and government spending, and businesses stocking up on inventories, especially on software.

The Dayton region has a larger emphasis on government spending as a driver of the local economy, with the billions of dollars that flow through Wright-Patterson Air Force Base each year. Many local companies thrive on the defense contracting dollars from the base.

Consumer spending, which accounts for almost 70 percent of the U.S. economy, increased at 2.8 percent during the third quarter, while government spending rose 4.0 percent. And business spending jumped 10.3 percent during the third quarter, a healthy rate but lower than the 17.2 percent pace in the second quarter.

Overall, the economy is showing a little, albeit modest, life in recent months, compared to the 1.7 percent growth during the second quarter, according to the Commerce Department.

The revised third-quarter GDP is the highest rate since fourth-quarter 2006, a year before the Great Recession started. The recession, considered the worst since the Great Depression, ended in late summer or early fall 2009, according to many economists.