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GDP growth slows, recovery still on track

WASHINGTON - The U.S. economy grew in the third quarter at a 2.2 percent pace - but the gain was less than previously estimated, the government reported yesterday.

WASHINGTON - The U.S. economy grew in the third quarter at a 2.2 percent pace - but the gain was less than previously estimated, the government reported yesterday.

Even so, all signs suggest the economy will end 2009 on firmer footing as it bounces back from the recession.

The Commerce Department's new reading on gross domestic product for the July-to-September quarter was weaker than the 2.8 percent growth rate it estimated a month ago. Yesterday's report was the final one on the third-quarter GDP, and economists had predicted this figure would remain the same as last month's estimate.

The GDP, the broadest gauge of the economy, measures the value of all goods and services produced in the United States.

The main factors behind the downgrade to 2.2 percent were that consumers didn't spend as much as previously estimated, commercial construction was weaker, business investment in equipment and software was softer and companies cut back more on their stockpiles of goods.

Still, the economy managed to return to growth during the quarter after a record four straight quarters of decline. That signaled that the deepest and longest recession since the 1930s had ended and the economy had entered a fragile recovery.

The recession's end has not been declared by the arbiter of such data, the National Bureau of Economic Research. But it generally does not date the start and end of recessions until it analyzes months of economic figures.

Many analysts still think the economy is on track for a better finish to 2009 in the current quarter. One sign was a separate report yesterday that home resales surged in November to their highest level in nearly three years, thanks to an extraordinary level of federal support. The report added to evidence that the housing market, which led the country into recession, is on the mend.

For the fourth quarter, the economy is probably growing at nearly 4 percent annual rate, analysts said. A few peg it closer to 5 percent.

If that range is correct, it would mark the strongest showing since 5.4 percent growth in the first quarter of 2006 - well before the recession began in December 2007.

The government will release its first estimate of fourth-quarter economic activity on Jan. 29.

Growth in the final quarter is expected to be driven mainly by companies restocking depleted inventories. Stocks of goods were slashed at a record pace during the recession. So even the smallest pickup in customer demand will force factories to step up production and boost overall economic activity in the final quarter.

Stronger sales of exports to foreign customers, as well as spending by U.S. consumers and businesses, also will help underpin fourth-quarter growth.

"We expect a better performance in the fourth quarter, but the core problems for the economy - bust banks and a massively overleveraged consumer - have not gone away," said Ian Shepherdson, chief economist at High Frequency Economics.

That's why many economists predict growth will slow to a pace of around 2 or 3 percent in the first three months of 2010 as consumers stay frugal. Also, the big lift from inventory restocking isn't expected to last.

GDP: At A Glance

Annualized rate of changes for the overall GDP and for selected components in the third quarter compared with the second quarter

Overall economic

growth (GDP) +2.2%

Corporate profits* +12.7

Consumer spending +2.8

Business investment -1.3

Exports** +17.8

Imports** +21.3

Federal spending/

investment +8.0

State and local

spending/investment -0.6

National defense +8.4

*After-tax profits

**Goods and services combined

SOURCE: Commerce Dept.