Economy grew 2.5 pct. in Q3 as consumers rebound


The Commerce Department said Thursday that the economy expanded at an annual rate of 2.5 percent in the July-September quarter. That's nearly double the 1.3 percent growth in the April-June quarter, and a vast improvement over the anemic 0.9 percent growth for the entire first half of the year.

While 2.5 percent growth is enough to ease recession fears, it's far below what's needed to lower painfully high unemployment. Analysts project similar growth for the October-December quarter.

Consumers spent at an annual rate of 2.4 percent -- more than triple the rate in the spring. They bought more cars and furniture, spent more on clothing and health care, and ran the air conditioner longer to help combat an unseasonably hot summer.

The report measures gross domestic product, or GDP, which is the country's total output of goods and services. It covers everything from bicycles to battleships, as well as services such as haircuts and doctor's visits.

In August, many thought the economy was headed for another recession after the government said GDP fell to less than 1 percent for the first six months of the year. High gas prices, the growing debt crisis in Europe and wild fluctuations in the stock market also contributed to those fears, which have receded in recent weeks after reports showed improvements in hiring and consumer spending.

Economists expect growth in the range of 2.5 percent to 3 percent in the October-December quarter and for all of next year -- just enough to keep the unemployment rate from rising.

For the 14 million people who are out of work and want jobs, that's discouraging news. And it's an ominous sign for President Barack Obama, who will be facing voters next fall.

"We are looking at very disappointing growth over the next year. It will be far short of what is needed to get businesses to hire more aggressively," said Mark Zandi, chief economist at Moody's Analytics.

There have been some encouraging signs.

A measure of business investment plans rose in September for the second straight month and by the most in six months, according to a government report Wednesday on orders for longer-lasting manufactured goods.

And consumers stepped up their spending on retail goods in both July and September. The main reason for the September gain was more people bought new cars, a purchase people typically make when they are confident in their finances.

Economists warned that even their modest assessment of growth of around 2.7 percent for next year will fall short if the European debt situation does not get resolved. And the outlook could dim further if U.S. lawmakers allow a Social Security tax cut and extended unemployment benefits to expire at the end of this year.

"How the economy performs next year will depend heavily on what policymakers here and in Europe do in coming weeks," Zandi said.

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