US economy improves

October 29, 2009
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, WASHINGTON, Oct 29 – The US government is expected to report Thursday the recession-wracked economy grew in the third quarter after a year of contraction following the worst financial crisis in decades.

Markets braced for the first official estimate of gross domestic product, the broadest measure of the output of goods and services, for the July-September period after economic data this week rattled hopes that a sustainable recovery is taking root.

The Commerce Department is due to report the initial GDP estimate at 8:30 am (1230 GMT) Thursday.

Most analysts expect the reading to show GDP rose an annualized 3.2 percent in the third quarter.

After shrinking a severe 6.4 percent in the first quarter, the world\’s largest economy has been showing signs of life in response to authorities\’ multibillion-dollar emergency stimulus and support measures. The contraction eased to a 0.7 percent dip in the second quarter.

"While the report is backward-looking, it is closely watched due to its comprehensive nature and potential impact on monetary policy," said Charles Schwab & Co. analysts.

Grim reports on consumer confidence and new-home sales this week unnerved investors, stoking fears that the green shoots of recovery are withering.

On Wall Street, stocks plunged to their worst loss of the month Wednesday.

As bearish data led economists to slash their GDP estimates, "traders decided to brace themselves for the worst ahead of tomorrow\’s preliminary GDP report, and most equities spent the day swimming in red ink," said Elizabeth Harrow of Schaeffer\’s Investment Research.

The anxiety was palpable beyond financial markets amid high unemployment that could continue to drag down any recovery. The jobless rate rose to 9.8 percent in September, a 26-year record, and is expected to rise into double digits even after the economy recovers.

According to a Wall Street Journal/NBC News poll published Wednesday, Americans are growing increasingly pessimistic about the economy after a mild upturn in attitudes in September.

Fifty-eight percent of those surveyed in the October 22-25 poll said the downturn would get worse, up from 52 percent in September and back to the level of pessimism expressed in July.

The "main concern, naturally, is about the sustainability of the US recovery," said Ed Yardeni, chief investment strategist of Yardeni Research.

"A frequent question is: \’What happens when your fiscal stimulus wears off?\’"
Analysts point out that much of the growth will be the result of businesses rebuilding inventories following sharp production cuts, and from government stimulus efforts that may not be sustained.

Some project the expansion will slow to a rate of around 2.0 percent in the fourth quarter.

Ann Sonders and Brad Sorensen, analysts at Charles Schwab, said they remain optimistic because of the potential of even a modest uptick in the demand side of the economy.

"While some worry that the economic recovery will take a step back after government stimulus programs expire, we see signs that the \’coiled spring\’ represented by significant declines in inventories, production and jobs could be getting ready to pop."

The United States officially entered recession in December 2007 but whether it is over is a more complex question.

The economy may linger for months in a "no-man\’s land" in which GDP is expanding but no one is sure if the recession is "officially" ended, because of the way business cycles are defined in the United States.

For decades, the US government and economic community have recognized a panel of academicians with the private National Bureau of Economic Research as the official arbiter of business cycles.

The NBER panel does not use the definition employed in many countries of recession as two consecutive quarters of declining GDP.

NBER says a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."
 

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