U.S. Q3 growth seen strongest in 2 years

Shoppers carry bags as they walk down Fifth Avenue in New York, December 6, 2008. REUTERS/Chip East

WASHINGTON (Reuters) - The U.S. economy likely grew at its strongest rate in two years during the third quarter, rebounding from a steep downturn that began in December 2007, according to survey of top economists released on Saturday.

Private economists polled October 5-6 for the Blue Chip Economic Indicators October survey said gross domestic product grew at an annualized rate of 3.2 percent in the quarter, up 0.2 percentage point from what they estimated a month earlier.

GDP shrank in the second quarter at a 0.7 percent annual rate.

Third-quarter growth was fueled by a rebound in personal consumption expenditures, the first increase in residential investment since the final quarter of 2005, and a reduced rate of business inventory reduction, the Blue Chip survey said.

The projected third-quarter growth would be the strongest since a 3.6 percent annual rate of GDP increase in the third quarter of 2007, according to Commerce Department figures.

A forecast for a 2.4 percent growth rate in the fourth quarter was unchanged from last month mostly due to economists’ belief that the ‘cash for clunkers’ incentive program, which expired in August, pulled demand for vehicles forward into the third quarter, the survey showed.

For the whole of 2009, Blue Chip forecasts the economy will shrink 2.5 percent, slightly below the 2.6 percent contraction forecast in September. In 2010 it will likely expand at a 2.5 percent pace, up from 2.4 percent seen last month.

But jobs will continue to be lost through at least the end of this year and the unemployment rate will likely average 10 percent over the next three quarters, receding only modestly from that level in the second half of 2010, the survey showed.

The panelists expect the workweek will lengthen and employment will begin growing again in the first half of 2010, lifting the pace of growth in personal income and consumer spending.

Reporting by Nancy Waitz; Editing by James Dalgleish