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U.S. economy grows faster than expected in third quarter

The GDP rises 2.5%, markedly improved over the second quarter as analysts point to consumer spending and exports. Still, the unemployment rate remains high, with companies reluctant to add workers despite a leap in corporate profits.

November 23, 2010|By Don Lee, Los Angeles Times

Reporting from Washington — The American economy grew faster in the third quarter of this year than previously estimated, thanks mostly to stronger consumer spending and U.S. exports, the government said Tuesday.

Economic growth in the July-to-September period was revised up to 2.5% at an annual rate, from 2% estimated earlier by the Commerce Department. The report was an encouraging sign, as gross domestic product, the broadest measure of economic activity, showed a marked improvement from the anemic 1.7% growth in the second quarter.

But the most recent increase in GDP still isn't strong enough to make a dent in the country's high unemployment rate, stuck at 9.6% in recent months. Analysts say GDP growth of at least 3% is needed to bring down the jobless figure, but many don't expect the economy to perform that well in the fourth quarter or early next year.

The Federal Reserve's latest economic outlook, to be released later Tuesday, is likely to reflect concerns among policymakers that unemployment will remain very high in the U.S. for the foreseeable future.

American corporations, on the other hand, have rebounded robustly from the recession. Tuesday's report showed corporate profits jumped 28% in the third quarter from a year earlier, to an annualized total of $1.66 trillion. That's a record high and reflects deep cost-cutting in the past and increases in demand for goods and services.

With surging profits and mountains of cash in hand, business spending for equipment and software rose an upwardly revised 16.8% in the third quarter. But thus far, many companies have been reluctant to add new workers.

GDP, which tallies the total value of goods and services produced, has increased in each of the last five quarters after sharp declines during the depths of the recession. But growth has weakened since GDP expanded by 5% in the fourth quarter of last year.

Analysts were heartened by Tuesday's report as it showed consumer spending — which accounts for about 70% of the American economy — rose 2.8% in the third quarter, compared with the 2.6% originally estimated. Growth in exports was revised higher, to 6.3% from 5%, and government spending was stronger in the latest quarter than previously thought.

Also encouraging were revisions showing personal incomes and the savings rate were higher than earlier estimates. The U.S. personal saving rate — the share of after-tax income that isn't spent — was 5.8% in the third quarter, up from 5.5% reported previously. The GDP revisions are based on more complete information received since the first estimates were made about a month ago.

don.lee@latimes.com

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