Skip to main content

(Updated to provide further detail from the Commerce Department's GDP report, and with closing-day stock prices.)



) -- The U.S. gross domestic product grew by a faster-than-expected 3.5% in the third quarter, the best reading in two years and the first time the economy has shown growth in four quarters.

Expansion was expected in the three-month period that ended in September, though analysts had forecast 3.2% growth. In the second quarter, GDP decreased by 0.7%.

Market watchers are sure to interpret the third-quarter number as the clearest signal so far that the worst recession in generations has turned. (Indeed, on the day, the Dow gained 199.89 -- a maddening figure for those who prefer their Dow movements in nice, big round numbers.) The figures released Thursday are "advanced estimates," and could end up being revised down or up in the coming weeks.

Still, on the surface, the number looked promising -- just as the recent third-quarter earnings beats by bellwether companies have appeared promising: from banks like

JPMorgan Chase

(JPM) - Get Free Report

to industrial behemoths like


(CAT) - Get Free Report

to tech stalwarts like


(INTC) - Get Free Report


The last time the economy registered this kind of growth was in the third quarter of 2007, when GDP grew by 3.6%. It has shrunk ever since, a string of contraction not seen since 1947.

Credit the cash-for-clunkers program for a large portion of the GDP increase. Automobile output added 1.6 percentage points to the third-quarter GDP change, the Commerce Department said. In the previous period, autos added 0.19 percentage points.

Juiced by the clunkers program, car demand also helped the country's overall durable goods output spike by 22% in the third quarter, Commerce said. In the previous period, durable goods fell by 5.6%.

Plenty of government spending also contributed to the growth, demonstrating that whatever tentative recovery may be developing has been partly propped up by billions upon billions of Washington-induced support, though the amounts have slackened a bit from the second quarter of the year.

Government spending rose 7.9% in the third period, down from an 11.4% increase in the previous quarter. National defense spending grew by 8.4% following the 14% jump recorded in the previous three-month span. Nondefense expenditures grew by 6.8% after a 6.1% rise.

State and local government spending, however, remained relatively anemic. It increased by just 1.1%, down from a 3.9% rise last quarter.

Exports did particularly well in the third quarter, according to the Commerce figures, registering an increase of 14.7% in the third quarter. By contrast, exports fell by 4.1% in the previous quarter. This was offset by a jump in imports (the value of which is subtracted in the GDP calculus) of 16.4% after a decrease of 14.7%.

Among the other components of the GDP figure: Personal consumption rose 3.4%, compared to a 0.9% decline last quarter; nondurable goods increased by 2% after a 1.9% drop in the second period; and services grew by 1.2% following a 0.2% rise.

As for inflation concerns, the price index for gross domestic purchases rose 1.6% in the quarter, which follows a 0.5% increase in the second period. After removing volatile food and energy prices from the equation, however, the index showed a 0.5% rise, compared with 0.8% in the previous quarter.

-- Written by Scott Eden in New York

Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.