Gross domestic product expanded at a 2.5% annual rate in the period from July through September, the commerce department reported on Thursday, the fastest pace in a year and up from 1.3% in the prior three-month period. After adjusting for inflation, GDP climbed to $13.35 trillion last quarter, topping the $13.33 trillion peak reached in the last three months of 2007.
The American economy finally has accomplished the recovery and has now entered the expansion, said Neal Soss, chief economist with Credit Suisse in New York, who was an aide to former Federal Reserve chairman Paul Volcker. But the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.
Consumers reduced savings to boost purchases and companies stepped up investment in equipment and software, even as the biggest drop in incomes in two years raises concerns about whether the spending increase will continue. The number of Americans with jobs last month, 131.3 million, was lower than the 138 million workers in December 2007, when the 18-month recession began, according to labour department data.
US stocks surged on Thursday as European leaders agreed to expand a bailout fund to stem the regions sovereign debt crisis. The Standard & Poors 500 Index jumped 3.4% to 1,284.59, extending the biggest monthly rally for the gauge since 1974. Treasuries sank, pushing the yield on the 10-year note up to 2.39% from 2.21% the day before.
The US economy expanded at an average 0.9% rate in the first half of 2011, the worst performance since the recovery began in June 2009. Growth needs to exceed 2.5% to reduce the jobless rate, according to estimates by Kurt Karl, chief US economist at Swiss RE in New York.
Unemployment stuck around 9% or higher for 30 months explains why Federal Reserve policy makers, who meet next week, and the Obama administration are considering additional measures to boost the economy.
We are well below potential output, said Ben Herzon, an economist at Macroeconomic Advisers, the St Louis-based forecasting firm cofounded by former Fed governor Laurence Meyer. The time to get excited is when everyone who is looking for work has got work.
Corporate investment in equipment and software was a bright spot in Thursdays report, climbing at a 17.4% pace, the most in a year.
Profits for companies in S&P 500 rose 16% on average in the three months ended September 30, based on results reported so far. Earnings are beating analyst predictions by 5.5%, compared with a rate of 3.3% since 2005, the data show.
A pickup in investment hasnt translated into more jobs. Payrolls rose by an
average 96,000 workers per month last quarter, down from the 166,000 average in the first quarter.