Economic recovery slower than first thought

WASHINGTON (AP) — The economy grew at a 2.8 percent pace last quarter, as the recovery got off to a slower start than first thought.

The Commerce Department’s new reading on gross domestic product wasn’t as energetic as the 3.5 percent growth rate for the July-September period estimated just a month ago.

The main factors behind the downgrade: consumers didn’t spend as much, commercial construction was weaker and the nation’s trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.

The new reading on GDP, which measures the value of all goods and services produced in the United States — from machinery to manicures — was a tad weaker than the 2.9 percent growth rate economists surveyed by Thomson Reuters had expected.

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Still, the good news is that the economy finally started to grow again, after a record four straight losing quarters. The bad news is that the rebound, now and in the months ahead, probably will be lethargic.

The worst recession since the 1930s is very likely over, but the economy’s return to good health will take time, Fed officials and economists say.

Growth probably won’t be strong enough to quickly drive down the nation’s unemployment rate, currently at 10.2 percent. It’s only the second time in the post-World War II period that unemployment has topped 10 percent.

Some economists think economic growth will slow to around a 2.5 percent pace in the current quarter, although others say it could clock in at about 3 percent if holiday sales are better than expected.

Most say they think the economy will weaken again next year, with growth at a pace of around 1 percent as the impact of the $787 billion stimulus package fades and consumers keep tightening their belts under the strain of high unemployment and hard-to-get credit.

Much of the economy’s return to growth last quarter reflected federal support for spending on homes and cars.

But Tuesday’s report shows that some of that spending was a bit less robust than initially thought.

Spending on homes and other residential projects soared at an annualized pace of 19.5 percent last quarter, a little slower than the 23.4 percent rate first estimated. Spending on big-ticket “durable” goods — including cars — jumped at a pace of 20.1 percent, down from 22.3 percent.

Even with the downward revisions, it was notable that such spending grew, after falling in the previous quarter.

In the third quarter, the popular Cash for Clunkers rebates and an $8,000 tax credit for first-time homebuyers juiced up sales of cars and homes. The clunkers program ended in August, but the tax credit has been extended and expanded beyond first-time buyers.

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