Ahead of the Bell: GDP

AP News
Posted: Nov 22, 2011 7:47 AM
Ahead of the Bell: GDP

The U.S. economy likely grew at a solid pace in the second half of the year after nearly stalling in the first six months.

Economists predict the government won't change its initial estimate of 2.5 percent annual growth for the July-September quarter, based on a survey by FactSet. The Commerce Department will release the second estimate at 8:30 a.m. EST Tuesday.

Analysts say the economy is growing at closer to 3 percent in the October-December quarter, after seeing favorable October reports on retail sales, home construction and factory output.

The growth, while modest, is not nearly enough to lower the unemployment rate, which has been stuck near 9 percent for more than two years. And economists caution that their brighter outlook hinges on Europe's financial crisis, which could trigger a recession in that region and slow U.S. growth next year.

The government makes three estimates of the gross domestic product, the economy's total output of goods and services, each quarter with the revisions based on more complete economic data.

In the first six months of the year, the economy grew at an annual rate of just 0.9 percent. It was the weakest growth since the recession officially ended, which stocked fears over the summer that the economy could be on the verge of another downturn.

The stronger growth in the July-September quarter _ the best quarterly performance in a year _ helped calm those worries. Consumers increased their spending at nearly triple the rate of the previous quarter to drive the growth.

Still, Americans spent more while earning less, and they dipped into their savings to make up the difference. At the same time, businesses invested more in machines and computers, not workers.

Without more jobs and pay raises, consumers are unlikely to be able to sustain those gains.

In October, the economy added a net total of 80,000 jobs. It was the 13th straight month of gains. Still, the additional jobs were fewer than the roughly 125,000 that are needed each month just to keep up with population growth.

There have been signs that the economy and job market are both getting better.

Last week, the government reported further improvement in the number of people seeking unemployment benefits for the first time. The number fell to 388,000, the fewest since April.

Retail sales and factory production both increased in October. While U.S. builders started slightly fewer homes, building permits, a gauge of future construction, surged nearly 11 percent. That gain was led by a 30 percent increase in apartment permits, to their highest level in three years.

Economists at JPMorgan Chase & Co., are now predicting growth of 3 percent this quarter, up from an earlier estimate of 2.5 percent growth.