Economy Zooms to 3.5% Rate in 3rd Quarter

(CBS/AP)  Updated at 6:30 p.m. EDT

Fueled by government stimulus, the economy grew last quarter for the first time in more than a year. The question now is, can the recovery last?

Federal support for spending on cars and homes drove the economy up 3.5 percent from July through September. But the government aid - from tax credits for home buyers to rebates for auto purchases - is only temporary. Consumer spending, which normally drives recoveries, is likely to weaken without it.

If shoppers retrench in the face of rising joblessness and tight credit, the fragile recovery could tip back into recession.

For the Obama administration, the positive report on economic growth is a delicate one: It wants to take credit for ending the recession. On the other hand, it needs to acknowledge that rising joblessness continues to cause pain throughout the country.

Millions of Americans have yet to feel a real-world benefit from the recovery in the form of job creation or an easier time getting a loan. Even those with jobs are reluctant to spend. The values of their homes and 401(k)s remain shrunken.

President Barack Obama called the report "welcome news" in remarks prepared for a small-business group but acknowledged that "we have a long way to go to fully restore our economy" and recover from the deepest business slump since the 1930s-era Great Depression.

"The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well," Mr. Obama said.

The rebound reported Thursday by the Commerce Department ended the record streak of four straight quarters of contracting economic activity.

The news lifted stocks on Wall Street. The Dow Jones industrial average jumped 200 points Thursday to recoup most of its losses for the week. It was the best day for the Dow since July 15.

But whether the recovery can continue after government supports are gone is unclear. Many economists predict economic activity won't grow as much in the months ahead as the bracing impact of the government's $787 billion package of increased government spending and tax cuts fades.

"The positive GDP report tells us the recession ended this summer and the recovery has begun. It does not tell us that we are recovered," economist Lakshman Achuthan told CBS News correspondent Anthony Mason.

For many businesses, the strategy is still caution, reports Mason.

"I don't see hiring returning in the near term," Scott Wine, CEO of Polaris Industries, told Mason.

The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.

Christina Romer, Obama's chief economist, has acknowledged that the government's stimulus spending already had its biggest impact and probably won't contribute to significant growth next year.

For the third quarter, government support proved crucial. Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes. A jump in spending on big-ticket manufactured goods largely reflected car purchases spurred by the government's Cash for Clunkers program.

Spending on housing last quarter was positive for the first time since the end of 2005. The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires Nov. 30.

(Dept. of Commerce)

Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter. And businesses boosted spending on equipment and software at a 1.1 percent pace, the first increase in nearly two years.

Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.

Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will prompt factories to boost production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months, economists said.

Still, with unemployment at a 26-year high of 9.8 percent and credit hard to get, the recovery faces obstacles.

"Even if we've turned the corner, we know it's a long way before we're completely recovered," Christina Romer, chair of the White House Council of Economic Advisers, said in an interview with The Associated Press. "You can't have an unemployment rate of 9.8 percent and not be deeply troubled."

Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.

The Labor Department said Thursday that newly laid-off workers seeking unemployment insurance to a seasonally-adjusted 530,000. Analysts expected a drop to 521,000.

The number of people continuing to claim benefits, fell by 148,000 to 5.8 million, steeper than analysts expected. Those figures lag initial claims by a week.

A full job recovery will likely take years. After the eight-month recession in 2008, it took more than five years to fully recovery the 2.7 million jobs lost, report CBS News correspondent Kelly Wallace..

"We're not really expecting a real, a real sharp recovery in the jobs, in the job numbers for some time," Ann Bovino, of Standard & Poors, told CBS News.

However, as CBS MoneyWatch editor-at-large Jill Schlesinger notes, some sectors - health care, education, government and technology - are hiring.

With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained in the months ahead. That would put a much heavier burden on America's businesses to keep the recovery going.

"We're beginning to crawl out a very deep hole," said economist Ken Mayland, president of ClearView Economics. "It will take time to get back to normal again and there are questions about how consumers will hold up in the months ahead. But I think the recovery will be sustained."

To foster the recovery, the Federal Reserve is expected to keep a key bank lending rate at record low near zero when it meets next week and probably will hold it there into next year. With the economy on the mend, the Fed has slowed some emergency support programs but doesn't want to pull the plug until the recovery is on firm footing.

Even with the economy climbing back into positive territory in the third quarter, it's up to another group to declare the recession over. The National Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually makes it determinations well after the fact.

[amazedd]

I wonder, what's the Bollywood equivalent for Wall Street?

[delmaz]

I just want to comment on what the gov. said about the economy and how they took care of it. seems to me they lined the pockets of the banks and threw grandma and grandpa of the train.Yes the economy is picking up now so they say! lets pickup grandma and grandpa.

[spaceatoms]

And the report has been given to you by the Dockers and steroids commitee!

[doc_holliday76]

Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.

Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will prompt factories to boost production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months, economists said.

[reality42]

GDP is up because the Americans keep putting bans on other countrys produce to keep there protectioizem in place. I'm glad to see China taking control over the USSA The bankrupt country where most own nothing but assemble things for there job

[reality42]

GDP up 3.5% is no big deal because the big companys are making all the money from there work forces over seas but the people in America that don't work for $2.00 a day are unemployed. so 3.5 GDP means very little to the average American

[armyoftwelve]

I don't think I'd call 3.5% "zooming" but it is an improvement. I'm not so sure all the trillions of stimulus spending produced that much of a return.

Maybe we need another capital gains tax cut!

[pohd1]

A report from CBS states that 30,000 jobs created although it is claimed overstated by 5,000. So $787 Billion produced 30,000 jobs. That is $26.23 million per job. Wow what type of taxes will these lucky people be paying for that pay. Government at work just think if the health bill is passed trillions and it may produce over 40,000 jobs but over 500,000 lost their jobs last month. Pelosi and Reid a second stimulus is needed and $40 trillion needed to create 1.5 million jobs but by then over 2 million would have lost their jobs. Endless cycle of government interference with the economy.

[doc_holliday76]

by Marc_1986:
"Again, you're confusing 'no upgrades to infrastructure' with 'no upgrades to infrastructure at this time'."
----------------------------------------





And who do you suppose will be doing the work on re-building our infrastructure? Little gnomes or gremlins?

It's a fact that our infrastructure has been crumbling for decades, while the GOP keeps proposing more "defense" budget expenditures for the WAR PROFITEERS in the military/industrial complex.

GEEZ....why not put Americans back to work by re-building our crumbling infrastructure? What a no-brainer you missed!

[doc_holliday76]

by natdef_1:
"Now that Democrats control all three legislative branches..."
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What? Surely you jest, but then again, the republican'ts posting here prove on a daily basis exactly how science-challenged and economically-challenged they are, and now you prove exactly how civics-challenged you are!

According to Our Constitution, we only have TWO legislative branches -- the Senate and House of Representatives -- so I say you're just making it up as you go along with your knee-jerk opinions!

[sjc_1]

This person either did not takes Civics nor Government classes in school or slept through the whole thing. BUT, they feel fully qualified to express their highly informed opinions.

[doc_holliday76]

by Marc_1986:

"While I'm completely against over-taxing the rich,"
------------------------------------






GEEZ....my heart just bleeds for the wealthiest and corporate elite that have been cutting a fat hog for years with lowered income tax. The top 1% pays an average of 22% in income tax, due to their heavy usage of the 15% capital gains tax rate as income, huge tax shelters and offshore accounts -- not to mention the best accountants, tax preparers and tax lawyers that wrote the tax codes for the wealthy. They aren't even close to the 40-50% you cried about!

Do you actually 'think' the congresscritters and lobbyists have been writing the tax codes for the middle class and not the wealthy? Guess again!

[askagain]

There will always be jealousy and resentment toward people who have more than other people. It makes many people feel better when they believe that anyone with money has it because they are dishonest, greedy, or unethical. There are many people who make a lot of money because of their hard work, determination, and creativity. And yes the factory owner makes more than the thousands of people they employ. Why shouldn't that be the case?

[sjc_1]

What do the shareholders, board and executive DO for the money they TAKE? They pay their executive HUGE salaries, when there are 1000s of MBAs that would do a better job for less, but they will NEVER get the chance. The shareholders collect dividends, but they never did ONE thing productive. A system based on exploiting and then discarding will never survive. Share the wealth with those that created it through productive work and we ALL will have true prosperity.