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By Laura Conaway

Good morning, and have we got news for you on this last Thursday of October.

The American economy grew last quarter. It really did. The Commerce Department reports that gross domestic product -- the sum of all goods and services -- expanded from July to September at an annual rate of 3.5 percent. The new GDP figure comes after four straight quarters of shrinking.

Analysts anticipating some effect from government stimulus spending, including Cash for Clunkers, had predicted growth at a rate of 3.2 percent, Bloomberg reports. Personal consumption, meaning people buying stuff, climbed 3.4 percent. The automobile sector accounted for 1.66 percent of the 3.5 percent rate.

After the jump: Very tiny inflation, plus the latest jobs numbers.

The Commerce Department stresses that today's GDP figure is subject to revision, perhaps even to multiple revisions. The final mark for the second quarter of 2009 showed the economy still shrinking, but slowly, at a rate of 0.7 percent.

The report shows continued signs of very tiny inflation. Excluding the volatile areas of food and energy, prices grew by 0.5 percent. One risk of stimulating the economy through government spending and low interest rates is that you'll create inflation. So far, that doesn't seem to be happening.

Economists have begun to argue that the recession is over. Recessions are typically defined as two consecutive quarters of contraction. Regardless of whether the National Bureau of Economic Research eventually says we've now left the Great Recession behind, we have been through one heck of a wringer. From June 2008 to June 2009, the economy shrank at a rate of 3.8 percent. We haven't seen numbers like that for 70 years.

Meanwhile, new claims for jobless benefits were nearly unchanged last week, with a drop of 1,000 to 530,000, the Department of Labor reports. The four-week moving average fell by 6,000 to 526,250. Interestingly, neither figure needed revising from the previous report.

The recession won't feel like it's over for Main Street until layoffs return to normal levels -- about 300,000 to 350,000 week -- and unemployed people start getting jobs again. A statement from White House economic adviser Christina Romer shows the administration taking credit for the GDP news this morning and acknowledging that yes, for voters, it's all about jobs.

Romer, who chairs the Council of Economic Advisers, said:

"Data released today by the Commerce Department show that real GDP grew at an annual rate of 3.5 percent in the third quarter of the year. This is in stark contrast to the decline of 6.4 percent annual rate just two quarters ago. Indeed, the two-quarter swing in the rate of growth of 9.9 percentage points was the largest since 1980. Analysis by both the Council of Economic Advisers and a wide range of private and public-sector forecasters indicates that the American Recovery and Reinvestment Act of 2009 contributed between 3 and 4 percentage points to real GDP growth in the third quarter. This suggests that in the absence of the Recovery Act, real GDP would have risen little, if at all, this past quarter.
After four consecutive quarters of decline, positive GDP growth is an encouraging sign that the U.S. economy is moving in the right direction. However, this welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered. The turnaround in crucial labor market indicators, such as employment and the unemployment rate, typically occurs after the turnaround in GDP. And it will take sustained, robust GDP growth to bring the unemployment rate down substantially. Such a decline in unemployment is, of course, what we are all working to achieve."

categories: Morning Report

9:05 - October 29, 2009

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