U.S. Economy Grows 2% in Third Quarter

The economy expands at a faster pace in the third quarter but growth is largely in line with expectations
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NEW YORK (

TheStreet

) -- The U.S. economy grew at a faster pace in the third quarter, according to the first estimate of GDP by the Bureau of Economic Analysis.

Real gross domestic product increased at an annual rate of 2% after rising 1.7% in the second quarter. The growth rate was in line with expectations, with recent trends all pointing to a slow economic patch.

The growth is still not high enough to boost employment. The

Federal Reserve

is expected to initiate another round of quantitative easing as early as next week to boost the economy.

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The slight acceleration in GDP was driven by a sharp deceleration in imports and acceleration in private inventory investment and personal consumption expenditure.

Real personal consumption expenditures, the biggest driver of GDP, increased 2.6% in the third quarter, compared with an increase of 2.2% in the second. The increase was driven by a sharp rise in demand for services, up 2.5% in the third quarter compared to a 1.6% rise in the previous quarter.

Private businesses increased inventories $115.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first.

Inventory growth, while a positive contributor to GDP is usually discounted by the markets as a sign of weakness in the economy because it represents unsold goods. Real final sales, which excludes the impact of swings in inventory, increased by a slower rate of 0.6% in the third quarter, after rising 0.9% in the second.

Nonresidential fixed investment slowed down to 9.7% from 17.2% in the previous quarter. Exports climbed at a lower rate of 5% down from 9.1% previously. But imports sharply decelerated, growing 17% in the third quarter, significantly lower than 33% previously.

Government purchases grew 8.8%, down from 9.1% in the second quarter.

According to the National Bureau of Economic Research, the "great recession" ended in June 2009. But the economic recovery has been anemic with the unemployment rate still at uncomfortably high levels.

The U.S. economy expanded 3.7% in the first quarter, but sharply decelerated in subsequent quarters.

The latest estimate is an advance figure and will be revised two more times before the final estimate.

Stocks were falling in the premarket trading. The

Dow Jones Industrial Average ETF

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was down 0.2%, while the

SPDR S&P 500

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was falling 0.3%.

--Written by Shanthi Venkataraman in New York

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