The US economy resumed growing in the third quarter after a year of decline as consumers spent more and investment in home-building bounced back to end the worst recession in 70 years, a Reuters survey of economists predicts.
The poll of 77 economists forecast real gross domestic product (GDP) expanded at a 3.3% annualized rate after shrinking 0.7% in the second quarter. It would be the first expansion since the second quarter of 2008.
Analysts doubt, however, that the growth momentum will be sustained into the last three months of the year given the worst labor market in 26 years, which could dent the budding recovery in consumer spending.
“The recession is over; the trough will be designated as June. That’s the way things are shaping up, but it’s not a very strong recovery so far,” said Kurt Karl, head of economic research and consulting at Swiss Re in New York.
Recessions in the US are dated by the National Bureau of Economic Research - The private-sector group, which does not define a recession as two consecutive quarters of decline in real GDP, often takes months to make determinations.
The recession that started in December 2007 was the worst since the 1930s. It was triggered by the collapse of the US housing market and the subsequent global credit crisis.
With the growth expectation priced-in by US financial markets, analysts said investors would scrutinize details of the upcoming Commerce Department report, especially inventories, consumer spending and residential investment for clues on the fourth quarter.
“If it’s weaker than expected because of less inventory build or more inventory drawdown than people thought, that will be taken as good news,” said John Canally, economist and investment strategist at LPL Financial in Boston.
“If we get a mess on housing and consumption, and capital investment is weaker than expected and inventories are in line with what people expected, that could get a negative reaction out of the market.”
Consumer Spending Rebounds
Growth in the July-September period likely was led by a turnaround in consumer spending, thanks in part to the government’s popular “cash-for-clunkers” program that gave discounts on purchases of some new motor vehicles.
The program has now expired, and the lift that it gave the auto sector won’t be repeated.
Consumer spending, which normally accounts for 70% of US economic activity, is expected to have grown at an annual rate of at least 3% in the third quarter after slipping 0.9% in the prior quarter.
After four straight quarters of decline, the economy is also expected to have received a boost from a sharp recovery in residential investment, with much of it driven by the government’s $8,000 tax credit for first-time buyers.
If so, it will be the first time that residential investment has benefited GDP since 2005, and the improvement will come mostly from the construction of single-family homes.
Moodys.com economist Joseph Brusuelas expects residential investment to rise at a 12.2% annual rate in the third quarter after dropping 23.3 percent in the previous quarter.
“Because single-family construction accounts for nearly three-fourths of new residential investment, risks to the forecast are toward a large increase,” said Brusuelas.
None of the analysts predicted a negative GDP figure, but they acknowledged the outcome might miss forecasts because of inventories, which were a wild card.
The slump in demand resulted in companies aggressively reducing stocks of unsold goods, contributing significantly to the fall in output in the last four quarters.
Some analysts hope a moderation in the pace of destocking by business will contribute positively to GDP in the third quarter, but recent data continued to point to aggressive liquidation of accumulated stock.
“While another large drawdown in inventories will be a drag on third quarter growth, it sets the stage for a longer and stronger upturn in manufacturing,” said Brusuelas.
While other sectors of the economy were expected to