Market Developments

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Economy jumps to largest growth in two years

Consumer spending, exports and investments experience greatest gains

By Stacy Straczynski
November 02, 2009

Is the economy finally on the mend? According to the U.S. Bureau of Economic Analysis, the economy grew at a rate of 3.5 percent in the third quarter. This is the highest growth seen since 3.6 percent growth was recorded in the third quarter of 2007, and follows a 0.7 percent decrease from last quarter.

Increases in real personal expenditures held significant sway in overall growth, increasing 3.4 percent to recover from a 0.9 percent decrease in Q2, with increases in durable goods (22.3 percent) leading the uptick. The report attributes the gains to the stimulus provided by the "Cash for Clunkers" program this summer. Non-durables (2 percent) and services (0.57 percent) also contributed.
 
"This number's juiced up a bit by the Cash for Clunkers program, but beyond that, we have year-over-year sales growth now in general-merchandise retailers, restaurants and grocery stores," said Craig Thomas, formerly senior economist and director for Citigroup and author of The Econosphere. "There is a very real trend happening that consumer spending has stabilized and improved a bit...I think people feel a little bit better about their job security. That combined with higher equity prices puts consumers on more stable footing right now."

Prices of goods and services also posted gains, rising 1.6 percent in the third quarter. When food and energy were excluded, the increase was adjusted to a lesser 0.5 percent. But the personal income sector did not share this boost, declining 0.5 percent. Stimulus payouts from the American Recovery and Reinvestment Act had boosted Q2 income 0.6 percent. Personal savings (3.3 percent) did show growth but dipped from its 4.9 percent growth the previous quarter.
 
While the Bureau emphasizes that the report is merely a preview of estimated figures, with a final revised set to be released on Nov. 24, the overall economic picture it paints for consumers is positive. And while Thomas agreed there is "absolutely nothing negative," he noted that the market expansion is again reaching a plateau.
 
"I think the reason that is, is that we're having an information problem right now...The worse our information is the worse the outcome for our economy. We have a situation where we don't know where the U.S. is going. We have several major policy initiatives that have thrown the roles away--whether it's health care, taxes, trade, energy," he said. "There's so much uncertainty right now that I think a lot of businesses don't see any problem in just waiting to hire, to invest...It's at a slower pace then it otherwise would be."

--Sales and Marketing Management
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