Economy Finally Back in Gear? 

 

The U.S. economy grew at a 3.5% annual rate in the third quarter, ending a string of declines over four quarters that resulted in the most severe slide since the Great Depression. But some economists raised doubts about how long such strong growth can last.

The increase in GDP, reported by the government Thursday morning, was slightly better than expectations. Economists surveyed by Briefing.com had forecast 3.2% growth in gross domestic product, the broadest measure of the nation's economic activity. The economy shrank at a 0.7% rate in the second quarter.

The positive GDP report is one more sign that the economy has likely pulled out of the deep recession that started in December 2007.

The reading by itself doesn't mark an end to the recession; the economy actually grew in the second quarter of 2008. (The National Bureau of Economic Research, which officially dates the beginning and end of recessions, is not expected to declare that the current recession has ended until sometime in 2010.)

How stocks are reacting

But the stronger-than-expected growth is likely to lead more economists to declare that the economy hit bottom earlier this year and turned higher at some point in the summer.

Businesses continued to reduce inventories, but by a much slower pace than in the past. That helped to lift the overall GDP growth rate by nearly a full percentage point.

The slashing of production in jobs in the face of weak demand has been one of the strongest drags on the economy during the past four quarters.

Robert Brusca, an economist with FAO Economics said that the fact that businesses are still cutting inventories "tells us that the economy has not yet turned any corner very sharply."

But Bill Hampel, chief economist of the Credit Union National Association, said it's encouraging that the economy was able to grow at all without businesses actually rebuilding inventory. He said that is a positive sign of growth yet to come.

"The inventories still need to be replenished, and when they are, it will give us an even bigger lift," he said. "I don't think this report is a sign of a booming economy, but it does seem to be setting down roots that will be sustainable."

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http://money.cnn.com/2009/10/29/news/economy/gdp/index.htm