Third-Quarter Growth Weaker Than First Thought
By JAVIER C. HERNANDEZ
Published: December 22, 2009
The nascent economic recovery was weaker than expected in the third quarter, the government said Tuesday, held back by slow business construction and dwindling inventories.
While the results tempered some of the enthusiasm about the speed of economic renewal, analysts still foresee steady, and stronger, growth in the fourth quarter, as exports rise and an improved jobs market encourages consumer spending.
The housing sector also showed signs of stability on Tuesday, with an unexpected surge in existing home sales. Sales climbed 7.4 percent in November as Americans took advantage of a tax credit for first-time home buyers, rising to a seasonally adjusted annual rate of 6.54 million, up from 6.09 million in October.
Still, economists expect the momentum from the tax credit, which offered up to $8,000 to home buyers, to taper off, leading to a drop-off in sales in December.
“It’s a really good number, but we’re going to see really bad, ugly numbers soon,” said Patrick Newport, an economist at IHS Global Insight, pointing to signs that mortgage applications for December purchases were down. “The housing market is still really weak.”
Prices were essentially flat from October, with the median sales price at $172,600, but they were down 4.3 percent from a year ago.
Markets showed solid gains after the housing numbers, with the Dow Jones industrial average climbing 0.4 percent. Investors continued a large sell-off of government bonds, with the yield curve — the gap between short- and long-term interest rates — widening to record levels. The curve is considered an indicator of economic health and suggests traders are expecting robust economic growth. But it also raises the specter of inflation.
Gross domestic product in the third quarter — the total value of goods and services in the economy — grew 2.2 percent from July through September, revised down from 2.8 percent last month and 3.5 percent in October.
“We did get off to a slightly slower start than we had thought,” said Nigel Gault, chief United States economist for IHS Global Insight. “That would be very worrying if we hadn’t had the evidence that we had done well in the fourth quarter.”
The United States is grappling with high levels of unemployment and businesses and consumers alike remain reluctant to spend. Still, analysts expect exports and consumer spending to rebound in the fourth quarter, helping the economy reach an annual pace of growth of about 5 percent.
Though the third quarter was weaker than previously thought, it still marked the first period of growth in a year, suggesting the longest economic contraction since World War II had ended. Government stimulus efforts, like the popular “cash-for-clunkers” program, helped drive spending.
The Commerce Department’s revisions were based on smaller-than-expected business inventories, which fell by $139.2 billion. Spending by businesses on items like software and equipment was also weaker than expected, rising by 5 percent rather than the 8.4 percent originally predicted.
Paul Dales, chief economist for Toronto-based Capital Economics, said the overall drop was “nothing to worry about,” but he expressed concern about the decrease in investment.
“It may suggest that a lot of the demand pent up during the recession has already been released,” Mr. Dales wrote in a research note on Tuesday. “High uncertainty and lots of spare capacity are limiting capital spending.”
Construction of business space like malls and office buildings fell more than previously thought, by 18.4 percent rather than 15.1 percent. Economists attribute that drop to a frail commercial real estate market, which is facing high vacancy rates and banks that are reluctant to finance business expansions.
Spending by state and local governments was also weaker than expected, falling 0.6 percent, compared with the 0.1 percent originally forecast. Consumer spending was revised slightly, growing 2.8 percent in the quarter rather than 2.9 percent.
As the New Year approaches, investors are optimistic that the economy will outperform its earlier gains rather than fall into another downturn. Retail sales were higher than expected in November, and the trade deficit unexpectedly narrowed in October. In addition, a weak dollar is making American products overseas cheaper, contributing to hope that exports will rise.
