Clear81° WeatherClear81° Weather

U.S. economy fends off dip back into recession

The U.S. economy grew at its fastest clip in a year during late summer as consumers and businesses shrugged off fears of a new recession, according to government data released Thursday that helped drive the stock market to its best day since August.

Investors were also cheered by overnight news that European leaders have reached an agreement on how to address their continent's debt crisis, and the Standard & Poor's 500-stock index ended the day up 3.4 percent. European markets were up even more sharply, with the German Dax index up 5.3 percent.

The agreement in Europe still has many details to be filled in, and the 2.5 percent pace of U.S. economic expansion in the third quarter isn't enough to bring unemployment down quickly even if it is sustained. But on both sides of the Atlantic, the news on Thursday offered a sense of relief: Maybe the world isn't falling apart, after all.

"The Europeans told us they're doing what they can do to take the immediate fear of financial collapse off the table, and the GDP numbers tell us that the U.S. economy did not collapse in the third quarter," said Jerry Webman, chief economist at OppenheimerFunds. "Together they are a kind of sigh of relief."

Owners of Greek debt will accept a reduction of as much as 50 percent in what they are owed, easing that country's debt burden; banks will receive new capital and a fund to back the continent's governments will be enlarged fourfold to $1.4 trillion. Analysts cautioned that executing the plan will require more difficult work by European governments in the months ahead.

President Barack Obama said the European plan would have an impact on the U.S. economy, but he stopped short of saying whether it would be enough to prevent another global recession.

"If Europe is weak, if Europe is not growing, as our largest trading partner that's going to have an impact on our businesses and our ability to create jobs here in the United States," Obama said Thursday in the Oval Office.

Over the summer, uncertainty over Europe's future and a downgrade of U.S. debt helped drive a period of confidence-rattling volatility on global financial markets. But now that the broadest measure of economic activity for that period is in, it appears that U.S. consumers and businesses took the events in stride.

Gross domestic product rose at a 2.5 percent annual pace in the July-through-September quarter, the Commerce Department said, considerably better than the 1.3 percent gain in the second quarter and the 0.9 percent rate of growth for the first half of 2011.

If there is to be a dip back into recession, as some analysts have feared, it appears it did not start in the third quarter.

But GDP was not strong enough to represent a "catch-up" effect that could bring the unemployment rate down substantially over time. Rather, 2.5 percent is somewhere around the treading-water rate of U.S. economic growth.

In another sign that the economy is not falling into recession, the number of new people filing claims for unemployment insurance benefits edged down last week, to 402,000 from a revised 404,000 the previous week.

Growth was bolstered during the quarter by a rebound in some of the factors that had held the economy back in the first half of the year. Automobile supply chains that had been disrupted by the Japanese earthquake in the spring reopened, and oil prices moderated after spiking early in the year.

339 Dow Jones closes up at 12,208; stocks surge on the European deal and a report on U.S. economic growth.

2.5% Expansion of the U.S. economy in the July-September quarter, the strongest quarterly growth in a year.

2.5-3% Projected annual growth rate for the U.S. economy in the October-December quarter.

U.S. economy fends off dip back into recession 10/28/11 [Last modified: Friday, October 28, 2011 12:16am]

Copyright: For copyright information, please check with the distributor of this item, Washington Post.
    

Join the discussion: Click to view comments, add yours

Loading...