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U.S. economy returns to growth, but recovery has a long way to go

The GDP rose at a 3.5% annual rate in the third quarter, unofficially ending the recession. Some economists, however, predict weaker expansion and higher unemployment in the near future.

October 30, 2009|Don Lee

WASHINGTON — The U.S. economy expanded at an annual rate of 3.5% in the third quarter, unofficially marking the end of the worst recession since World War II.

The growth reported Thursday by the Commerce Department for July to September snapped four straight quarters of economic contraction and slightly exceeded most analysts' forecasts.

The quarterly increase reflected a rebound in consumer spending supported by federal stimulus programs as well as improved business investments and home building.

The growth in the gross domestic product, the total value of goods and services produced in the country, is the evidence most economists have said is needed to declare victory against the recession.

But Thursday's preliminary report doesn't mean the economy is in good shape. Its expansion only partly offsets a dramatic decline of about 6% last fall and winter. GDP shrank 0.7% in the second quarter.

A number of economists, worried about consumer spending after the fading of government stimulus programs, are predicting weaker expansion in the fourth quarter and next year. And the unemployment rate, which reached a 26-year high of 9.8% last month, is expected to top 10% shortly and remain high for some time.

Christina Romer, who heads the White House Council of Economic Advisors, said that the current growth forecasts for the next five to six quarters would not be robust enough to bring down joblessness significantly.

Rising unemployment has posed serious challenges for the Obama administration, even though the effect of the $787-billion economic stimulus act approved in February was clearly seen in Thursday's positive GDP report.

Romer said the stimulus contributed 3 to 4 percentage points to real GDP growth.

She said she was encouraged by signs that private industry could pick up the mantle in driving the economy. She cited a rebound in business investments in equipment and software. Yet on the whole, she said, it remains to be seen whether the private sector "gets its sea legs again."

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don.lee@latimes.com

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