The economy as measured by the gross domestic product (GDP) grew a surprising 2.5% last quarter according to the report released by the Commerce Department. This was a full 1.2% higher than the 2nd quarter GDP of 1.3% and the highest increase since third quarter of last year. This marks the 9th straight quarter that the economy has grown during the Obama administration.
The stock market surged on the news reaching its highest point since last August closing over 12,000. Markets in Europe also closed stronger on the news.
This give hope that the U.S. may avoid a double dip recession although we are not out of the woods yet because the economy is still weak. The 2/5% is not strong enough to lower the unemployment rate at least not now. There were encouraging signs, however.
Consumer spending, business investment up
The report indicated that the increase in real GDP in the third quarter was due in large part to an increase in personal consumption expenditures (PCE), nonresidential fixed investment, exports, and federal government spending. These increases were partly offset by negative contributions from private inventory investment and state and local government spending.
Consumer spending, which is 70% of our economy, increased 2.4% during the quarter. Consumers increased their spending by withdrawing from their savings it appears. While consumer spending rose, the saving rate fell from 5.1% to 4.1%. This might signal some degree of confidence is returning.
Business investment grew at a 17.4% annualized rate in the quarter. This was due in large part to an increase in spending on business equipment and software. This added 1.6 percentage points to the GDP. Shrinking business inventories are a subtraction from the current quarter GDP, but they are a good sign that future spending to replenish inventories will help lift GDP in the next quarter.
Exports also increased 4% and imports grew at a slower rate increasing only 1.9% reducing the balance of trade deficit somewhat.
State and local government spending decreased due to budget cuts and shrinking tax revenue. This was one factor in why the growth was not more robust. This is one area where the American Jobs Act would have an impact. The bill killed by the Senate would have provided funding to state and local governments to re-hire teachers, and first responders. That would have an upward impact on the GDP helping a weak sector directly.
There is another positive sign about the economy. The number of new people filing claims for unemployment insurance benefits edged down last week, to 402,000 from a revised 404,000 the previous week. The 4 week average, a more reliable indicator showed that new unemployment claims are basically unchanged. That could mean the unemployment is not increasing.
This is certainly good news, but the economy still needs jobs. This shows how important passage of some jobs bills will be to turning our recovery around. Nevertheless, Congress has no intention of passing anything that might help Obama. Shame on them.
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