US third quarter growth revised down to 2.8 percent

by Rob Lever Rob Lever – Tue Nov 24, 3:19 pm ET

WASHINGTON (AFP) – The US economic rebound in the third quarter was weaker than initially estimated, the Commerce Department said Tuesday in cutting its estimate to a 2.8 percent annual pace of expansion.

The gross domestic product (GDP) figure was revised down from last month's estimate of 3.5 percent growth.

The growth figure was in line with most analyst forecasts, taking into account updated data, notably on consumer spending and trade.

Despite the downward revision, the report showed the first expansion for the economy after four straight quarters of contraction, including a 0.7 percent drop in the second quarter.

The data from the July-September period show the world's biggest economy appearing to emerge from its brutal recession, but with less momentum than previously thought.

Sal Guatieri, economist at BMO Capital Markets, said the revised figure does little to change his outlook for steady if less than spectacular growth.

"We still think the economy will expand at a three percent annual rate in the fourth quarter," he said.

"We're looking for modest growth in 2010 of about 2.5 percent."

Separately, the Federal Reserve raised its outlook for US economic growth in 2010 to a range of 2.5 to 3.5 percent, and said the troubles in unemployment appeared to be near a peak.

In a new forecast accompanying minutes from the Fed's policy meeting November 3-4, the central bank said participants "anticipated that economic recovery would be gradual, with real gross domestic product growing at a moderate pace and the unemployment rate declining slowly over the next few years."

The range for 2010 growth was boosted slightly from a July projection of between 2.1 and 3.3 percent.

The new forecast also suggests that unemployment, which hit a 26-year high of 10.2 percent in October, could ease in early 2010.

"Participants generally anticipated that the unemployment rate would rise somewhat further during the final months of 2009 and then decline steadily over the next few years," said the forecast accompanying minutes from the Federal Open Market Committee meeting.

The government's third quarter report showed personal consumption expenditures -- the main driver of economic activity -- increased 2.9 percent in the quarter, revised down from an estimate last month of 3.4 percent.

Even though consumer spending rose, a large portion of that came from the auto sector, with sales boosted by the government's "cash for clunkers" incentives to trade in older vehicles.

The revised figures showed exports of goods and services increased 17.0 percent in the third quarter, but imports grew at a faster pace of 20.8 percent, a factor that hurts GDP.

Augustine Faucher at Moody's Economy.com said the data showed a jump of 10.6 percent in corporate profits, and added, "this bodes well for near-term hiring and investment."

Faucher said the latest report "points toward continued economic expansion in the near term, but with growth that is below the economy's potential."

Others said the report showed a still-struggling economy.

"For all the fiscal and monetary stimulus, the best we could do was 2.8 percent," said David Rosenberg, chief economist at Gluskin Sheff & Associates.

"It's sad really but to be completely expected amid a collapse in private sector credit and shrinking household balance sheets. Strip out the government-administered medication, and the economy was flat on the quarter... Even if the recession is over, and we have yet to be fully convinced, there is no recovery."

Although many economists say the US recession is over, an official declaration has yet to come from the private National Bureau of Economic Research, seen 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. It says a recession is "a significant decline in economic activity spread across the economy," with drops in output, income, employment and sales.