U.S. Economic Activity Increases More Than Expected In Third Quarter

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Economic activity in the U.S. increased by more than expected in the third quarter, according to a report released by the Commerce Department on Thursday, with the report showing an increase in gross domestic product following four consecutive quarters of contraction.

The Commerce Department said its advance estimate showed that GDP increased at an annual rate of 3.5 percent in the third quarter compared to a 0.7 percent decrease in the second quarter. Economists had been expecting GDP to increase by 3.2 percent.

With the bigger than expected increase, GDP rose at its fastest rate since the 3.6 percent growth that was seen in the third quarter of 2007.

A jump in consumer spending contributed to the stronger than expected GDP growth, with spending increasing by 3.4 percent in the third quarter following a 0.9 percent decrease in spending in the second quarter.

Spending on durable goods showed a substantial increase, surging up by 22.3 percent in the third quarter due in part to higher auto sales as a result of the government's cash for clunkers program.

The Commerce Department said that the third quarter GDP growth also reflected positive contributions from exports, private inventory investment, federal government spending, and residential fixed investment.

Additionally, motor vehicle output added 1.66 percentage points to the third quarter change in real GDP after adding 0.19 percentage point to the second quarter change.

At the same time, imports, which are a subtraction in the calculation of GDP, increased by 16.4 percent in the third quarter following a 14.7 percent drop in the second quarter.

While third quarter GDP increased by more than anticipated, analysts generally seem unimpressed with the numbers, noting that the growth is due in large part to government stimulus such as the cash for clunkers program and the first-time homebuyers tax credit.

Rob Carnell, chief international economist at ING, said, "Suggestions that this figure marks the end of the recession in the U.S., although technically correct, ignore the relatively low quality of the growth registered in this release."

"Such suggestions also ignore the likely soft fourth quarter that is now in the pipeline," Carnell added. "The U.S. economy is not out of the woods yet."

With regard to inflation, the Commerce Department said its reading on core consumer prices, which exclude food and energy prices, rose 1.4 percent in the third quarter following a 2.0 percent increase in the second quarter.

In other economic news, the Labor Department said that initial jobless claims in the week ended October 24th edged down to 530,000 from the previous week's unrevised figure of 531,000. The drop was smaller than the decrease of about 6,000 expected by economists.

The less volatile four-week moving average fell to 526,250 from the previous week's unrevised average of 532,250. With the decrease, the four-week moving average fell to its lowest level since early January.

Economic activity in the U.S. increased by more than expected in the third quarter, according to a report released by the Commerce Department on Thursday, with the report showing an increase in gross domestic product following four consecutive quarters of contraction. The Commerce Department said its advance estimate showed that GDP increased at an annual rate of 3.5 percent in the third quarter compared to a 0.7 percent decrease in the second quarter. (Market News Provided by RTTNews)