WASHINGTON (Reuters) - The U.S. economy grew more slowly than first thought in the third quarter, but a fifth month of gains in house prices in September and an improvement in consumer morale signaled the anemic recovery was intact.
In its second estimate of third quarter gross domestic product published on Tuesday, the Commerce Department said the economy expanded at a 2.8 percent annual rate, probably ending the most painful U.S. recession in 70 years.
It was slower than the previous estimate of 3.5 percent but still the fastest pace since the third quarter of 2007, reflecting government fiscal stimulus. The new estimate was slightly below expectations for a growth rate of 2.9 percent.
That helped to push stocks on Wall Street lower as investors shrugged off two other reports showing house prices maintained their gains in September and consumers were a bit more optimistic this month, despite high unemployment.
“We are still on the right path and a double-dip (recession) is not on the cards,” said Jonathan Basile, an economist at Credit Suisse in New York.
With federal programs the main force behind the recovery, some economists are wary of risks of a double-dip recession — a scenario where output perks up briefly only to fall again when government support ends.
Minutes of the Federal Reserve’s policy meeting early this month released on Tuesday showed officials at the U.S. central bank viewed the recovery as durable, although they expected unemployment to rise further.
The Fed cut interest rates to near zero last December and has committed to keep them low for an extended period to aid the recovery that officials said would continue at a slow pace relative to historical experience.
Economists expect the U.S. unemployment rate to climb from its current 26-1/2 year high of 10.2 percent. President Barack Obama is under to pressure to find ways to spur job growth without unduly fueling an already record budget deficit.
The return to growth in the July-September period, after four straight quarters of declining output, followed a 0.7 percent contraction in the April-June period.
Output was constrained by consumer spending that was not as robust as first thought. Strong imports and weak investment in commercial buildings also held back growth.
But corporate profits surged as businesses raised output even as they were cutting payrolls.
In another sign of stability in a sector that was at the heart of the recession, the Standard & Poor’s/Case-Shiller index of home prices in 20 metropolitan areas rose 0.3 percent in September. Analysts said a tax credit for first time homebuyers helped support the market.
An index published by the U.S. Federal Housing Finance Agency found prices unchanged in September.
Separately, the Conference Board’s index of consumer attitudes increased slightly to 49.5 in November from 48.7 in October. That compared to market expectations of 53.1.
Rebounds in U.S. property sectors and consumer confidence are prerequisites for a sustainable economic recovery.
Tuesday’s GDP data showed imports into the United States were revised higher, showing more domestic demand was sated by overseas production. Imports jumped at 20.8 percent annual rate, the biggest gain since the second quarter of 1985, instead of 16.4 percent.
The rise in imports eclipsed a strong recovery in exports, thanks to a weak U.S. dollar, leaving a wider trade gap that took off just over half a percentage point from GDP.
“Both (exports and imports) grew very strongly and indicated that global trade was returning to normal. Further small increases in the net trade deficit are expected and will be a drag on future GDP growth,” said Brian Fabbri, chief North America economist at BNP Paribas in New York.
For a graphic on real GDP and the dollar, click on:
A drop in the construction of nonresidential structures also restrained growth in the last quarter. Commercial building activity dropped at a 15.1 percent pace rather than 9 percent, as previously reported, highlighting the problems in commercial real estate.
It shaved just over half a percentage point off GDP growth. Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, rose at a 2.9 percent rate, instead of the 3.4 percent pace reported last month.
It was the biggest rise since the first quarter of 2007 and represented a turnaround from a 0.9 percent second quarter fall. Businesses also reduced inventories at a slightly faster rate than had been anticipated.
While that revision trimmed third quarter GDP growth, analysts said it helps lay the groundwork for future production.
“That sets up for a better fourth-quarter GDP with more restocking,” said John Canally, economist at LPL Financial in Boston.
Additional reporting by Lynn Adler and Tom Ryan in New York; editing by Andrew Hay