US economic growth slower than expected

WASHINGTON - The United States economy grew 2.2 per cent in the third quarter, as the recovery got off to a weaker start than previously thought.

However, all signs suggest it will end the year on a stronger footing.

The Commerce Department's new reading of gross domestic product for the July-to-September quarter was slower than the 2.8 per cent growth rate estimated just a month ago. Economists were predicting that figure would not be revised in the Government's final estimate on third-quarter GDP.

The main factors behind the downgrade: consumers did not spend as much, commercial construction was weaker, business investment in equipment and software was a bit softer and companies cut back more on inventories, yesterday's report said.

Despite the lower reading, the economy managed to return to growth during the quarter after a record four straight quarters of decline.

That signalled the deepest and longest recession since the 1930s had ended, and the economy had entered into a new, fragile phase of recovery.

Many analysts believe the economy is on track for a better finish in the current quarter.

The economy is probably growing at nearly 4 per cent in the October-to-December quarter, analysts say. If they are right, that would mark the strongest showing since 5.4 per cent growth in the first quarter of 2006 - well before the recession began.

The Government will release its first estimate of fourth-quarter economic activity on January 29.

Yet even such growth would not be enough to quickly drive down the unemployment rate, now at 10 per cent.

High unemployment and tight credit for both consumers and businesses are expected to continue to weigh on the economic recovery. Many economists predict the economy's growth will slow to a pace of around 2 or 3 per cent in the first three months of 2010.

Growth in the final quarter is expected to be driven by companies restocking depleted inventories.

Stronger sales of exports to foreign customers, as well as spending by US consumers and businesses, also will help underpin fourth-quarter growth.

But much of the third quarter's growth was supported by Government stimulus spending. The Cash for Clunkers car-buying rebates and a US$8000 tax credit for first-time home buyers buoyed sales of cars and homes.

The Government's initial estimate for the third quarter was more energetic, showing the economy's growth at 3.5 per cent. Subsequent estimates, however, showed the recovery was actually slower.

Yesterday's report showed consumer spending grew 2.8 per cent, slightly weaker than the 2.9 per cent previously estimated.

Retail sales, however, showed decent momentum in October and November, raising hopes holiday sales would fare better than last year's, the worst in nearly four decades.

- AP