US economy grows 2.2%

US economy grows 2.2%
The Economic Times, December 23, 2009, Page 11

Timothy R Homan WASHINGTON

THE economy in the US expanded in the third quarter at a slower pace than anticipated as companies curbed spending and cut inventories at an even faster pace, reductions that have set the stage for an acceleration in growth.

The 2.2% increase in gross domestic product from July through September compares with a 2.8% gain previously reported by the Commerce Department in Washington. Improved consumer spending combined with a record drop in stockpiles this year will promote increases in production that may keep the world’s largest economy growing well into 2010. At the same time, companies such as Dell point to gains in business investment that signal growing confidence the expansion will be sustained. “All signals point to a strong fourth quarter,” Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Growth is shaping up at around 4 percent as the inventory cycle turns upward.”

The projected pace of growth was based on the median estimate of 73 economists in a Bloomberg News survey. Estimates ranged from gains of 2.5% to 3.7%. The GDP report is the third and final for the quarter. The government’s advance estimate two months ago was 3.5%.

The economy shrank 3.8% in the 12 months to June, the worst performance in seven decades. The four consecutive decreases through the second quarter mark the longest stretch of declines since quarterly records began in 1947.

This month’s revisions also showed a bigger gain in earnings than first estimated. Third-quarter corporate profits increased 10.8% rather than 10.6%, marking the biggest gain in more than five years. Productivity gains have boosted company earnings as payrolls are reduced. Labour costs fell at a 2.5% rate last quarter, capping the biggest 12-month drop in seven years, Labour Department figures showed earlier this month. Productivity, a measure of employee output per hour, surged at an 8.1% pace percent in the third quarter, the fastest pace in six years. —Reuters.