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Shares continue rally after US records 2.5 per cent GDP growth

The US economy grew at an annual rate of 2.5 per cent in the third quarter of 2011 – averting the risk of a second recession.

Image: Mark Lennihan/AP

THE US ECONOMY grew modestly over the summer, after nearly stalling in the first six months of the year, lifted by stronger consumer spending and greater business investment.

The US Commerce Department today said the economy expanded at an annual rate of 2.5 percent in the July-September quarter.

That’s the strongest growth America has registered for a year, at nearly double the 1.3 percent growth in the April-June quarter. It’s also a vast improvement over the anaemic 0.9 per cent growth registered for the entire first half of the year.

While 2.5 percent growth is enough to ease fears of a sustained recession, it is far below what is needed to lower the US employment rate, which has been stuck at 9 per cent for around two years now. Analysts project similar growth for the October-December quarter.

Nonetheless, the report on US gross domestic product (or GDP) paints an optimistic picture for an economy which only two months ago seemed destined for another recession.

Coming on the back of the European deal, which leaders hope will marked a turning point in their two-year debt crisis, stock markets have surged: the Dow Jones picked up 1.5 per cent upon opening, after European markets all recorded gains.

“This has been a morning of encouraging news,” said Jennifer Lee, a senior economist for BMO Capital Markets. “The fourth quarter may see some pullback in US economic growth … but the positive details underlying the GDP report should help ease fears of a US recession… somewhat.”

Consumers helped drive much of the growth. Their spending increased at an annual rate of 2.4 per cent — more than triple the rate in the spring. They bought more cars, furniture and clothing.

Economists project growth in the range of 2.5-3 per cent for the October-December quarter, and for all of next year – just enough to keep the unemployment rate from rising, but not to lower it by any significant amount.

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Associated Press

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