GDP: A New Hope

Gross Domestic Product is the word of the day today.President Barack Obama is hailing new figures showing the economy grew at a 3.5 percent rate in the third quarter, saying the country has "come a long way" since early this year.

In remarks prepared Thursday for a small business group, Obama said he believes the new figures are "an affirmation that this recession is abating and the steps we've taken have made a difference." The economy had shrunk by 6.4 percent in the first quarter.

The president cautioned, however, that "we have a long way to go to fully restore our economy" and recovery from the deepest business slump since the 1930s-era Great Depression. He called the report "welcome news."

The Fed's rate-setting policy meets November 3-4 and is widely expected to leave rates unchanged at record lows, but some observers say it may hint at increases to come.

"With the jobless rate near 10% and the risk of adverse market reaction, now is not the time" to change the Fed language that rates will stay close to zero for an extended period of time, said Michael Ferolli, economist at J.P. Morgan Chase, ahead of the GDP release.

While the economy has resumed rising, joblessness is still high. Next week the government will release data that could show U.S. unemployment topped 10% during October. Faced with bleak job prospects, U.S. consumers are losing faith, a report this week indicated.

The Conference Board, a private research group, said its index of consumer confidence fell to 47.7 this month, from 53.4 in September. The percentage of those who think jobs are hard to get rose. Their pessimism of future earnings could restrain holiday spending.

U.S. business inventories added 0.94 percentage point to GDP, the Commerce Department said Thursday. Inventories decreased $130.8 billion, compared to $160.2 billion in the second quarter.

Another component of GDP, housing, saw its first increase since the last quarter of 2005. Residential fixed investment surged by 23.4%, the largest rise since 1986.

Federal government spending increased 7.9%, after rising 11.4% in the second quarter. State and local government outlays fell 1.1%, after going up by 3.9% in the second quarter.

Real final sales of domestic product, which is GDP less the change in private inventories, increased at a 2.5% annual rate in the third quarter. Second-quarter real final sales of domestic product rose by 0.7%.

International trade weighed slightly on GDP. U.S. exports rose by 14.7%, while imports increased 16.4%.

Business spending reduced GDP by 0.24 percentage points. It fell by 2.5% in the third quarter, the best performance since a mild increase in the second quarter of 2008.

Price inflation gauges remained contained in the third quarter. The price index for personal consumption expenditures rose by 2.8% after increasing 1.4% in the second quarter.

Other price inflation gauges in the report include the price index for gross domestic purchases, which measures prices paid by U.S. residents. It rose by 1.6%, after increasing 0.5% in the second quarter. The chain-weighted GDP price index increased 0.8%, after remaining flat in the second quarter.

Source: WSJ Continue reading here