Double-Dip Recession Unlikely as GDP Rises 2 Percent

Oct. 29, 2010— -- The economy's painfully slow recovery gained a bit of momentum in the third quarter with the nation's GDP rising 2 percent, but not enough to make a dent in high unemployment.

Consumer spending climbed the most in almost four years, pushing aside worries that the economy might be headed into a double-dip recession. Third-quarter growth in consumer spending, which accounts for 70 percent of U.S. economic activity, increased at a 2.6 percent rate after rising 2.2 percent in the prior period.

The new report follows a 3.7 percent gross domestic product rise in the first quarter, and a 1.6 percent increase in the second. Economists had expected a 2 percent increase for the July-September period. GDP is the value of all goods and services produced in the United States and it's the key indicator of the nation's economic health.

"Growth is still positive, but a bit disappointing. It's not where we would like it to be at this point of the recovery," Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla., told Reuters.

The numbers may not be strong enough to give the recovery enough stride so that employers will want to hire or invest robustly in equipment. Unemployment has remained stubbornly high at nearly 10 percent since the recession officially ended more than a year ago.

"While it was good to see the economy improving, if only modestly, almost three-quarters of the growth was represented by inventory building. Relying on increased inventories in the face of weak demand doesn't give one a strong sense of security in future growth," said Martin Regalia, U.S. Chamber of Commerce's chief economist. "Clearly, it is nice to see improvement but we are still a long way from where we need to be to get job growth up and reemploy those displaced during the downturn."

The GDP data may add pressure on the Obama administration, which already is worried about a slowing economy, ahead of congressional elections next week.

The stock market has rallied 11 percent since the end of August on expectations that the government will do more to boost the economy. Fed Chairman Ben Bernanke said Aug. 27 the central bank "will do all that it can" to sustain the economic recovery. One way the Fed does this is by purchasing debt and another round of at least several hundred billion dollars is expected.

The slow economic recovery is a nightmare for the Obama administration and the Democratic Party a week away from crucial midterm elections that are widely expected to shift the balance of power in Congress in favor of Republicans. But there is some hope in the new figures, as well ,because consumers are starting to open their pocketbooks more.

One caveat on the GDP report is that the government typically revises these numberstwice after additional economic data is collated. A revision is expected Nov. 23.