Economy grows in 3Q, signals end of recession

The economy grew at a 3.5-percent pace in the third quarter, the best showing in two years, fueled by government-supported
spending on cars and homes.

The Commerce Department’s report Thursday morning delivered the strongest signal yet
that the economy entered a new, though fragile, phase of recovery and that the worst recession since the 1930s has ended.

Many analysts expect the pace of the budding recovery to be plodding due to rising unemployment and continuing difficulties
by both consumers and businesses to secure loans.

Still, the much-awaited turnaround ended the streak of four straight
quarters of contracting economic activity, the first time that’s happened on records dating to 1947.

It also marked
the first increase since the spring of 2008, when the economy experienced a short-lived uptick in growth.

The third-quarter’s
performance — the strongest since right before the country fell into recession in December 2007—was slightly better
than the 3.3-percent growth rate economists expected.

Armed with cash from government support programs, consumers
led the rebound in the third quarter, snapping up cars and homes.

Consumer spending on big-ticket manufactured
goods soared at an annualized rate of 22.3 percent in the third quarter, the most since the end of 2001. The jump largely
reflected car purchases spurred by the government’s Cash for Clunkers program that offered a rebate of up to $4,500 to buy
new cars and trade in old gas guzzlers.

The housing market also turned a corner in the summer. Spending on housing
projects jumped at an annualized pace of 23.4 percent, the largest jump since 1986. It was the first time since the end of
2005 that spending on housing was positive.

The government’s $8,000 tax credit for first-time home buyers supported
the housing rebound. Congress is considering extending the credit, which expires on Nov. 30.

The collapse of the
housing market led the country into the recession. Rotten mortgage securities spiraled into a banking crisis. Home foreclosures
surged. The sector’s return to good health is a crucial ingredient to a sustained economic recovery.

A top concern
is whether the economy can continue to stand on its own feet after government supports are gone.

Many economists
predict economic activity won’t grow as much in the months ahead as the bracing impact of President Barack Obama’s $787 billion
package of increased government spending and tax cuts fades.

The National Association for Business Economics thinks
growth will slow to a 2.4-percent pace in the current October-December quarter. It expects a 2.5-percent growth rate in the
first three months of next year, although other economists believe the pace will be closer to 1 percent.

Christina
Romer, Obama’s top economist, in remarks last week said the government’s stimulus spending already had its biggest impact
and probably won’t contribute to significant growth next year.

Brisk spending by the federal government played
into the third-quarter turnaround. Federal government spending rose at a rate of 7.9 percent in the third quarter, on top
of a 11.4-percent growth rate in the second quarter.

In other encouraging developments, businesses boosted spending
on equipment and software at a 1.1-percent pace in the third quarter, the first increase in nearly two years.

Third-quarter
activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere
improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S.
goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.

Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace
in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will led to factories
boosting production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months.

Even with the third-quarter improvement, the economy isn’t out of the woods yet.

Federal Reserve Chairman
Ben Bernanke and members of Obama’s economics team have warned that the nascent recovery won’t be robust enough to prevent
the unemployment rate — now at a 26-year high of 9.8 percent — from rising into next year.

Economists
say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of
next year before declining gradually. The government is scheduled to release the October jobless rate report next week.

With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained
in the months ahead. That would put a much heavier burden on America’s businesses to keep the recovery going.

To
foster the recovery, the Fed is expected to keep a key bank lending rate at record low near zero when it meets next week and
probably will hold it there into next year.

With the economy on the mend, the Fed has slowed down some key emergency
support programs but doesn’t want to pull the plug until the recovery is on firm footing.

Even if the economy climbs
back into positive territory in the third quarter, it will be up to another group to declare the recession over. The National
Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually
makes it determinations well after the fact.