NEW YORK (Reuters) - The U.S. economy grew more slowly than initially thought in the third quarter, held back by strong imports and weak investment in nonresidential structures, according to data on Tuesday that hinted at a lackluster recovery.
KEY POINTS: * In its second reading of third-quarter gross domestic product, the Commerce Department said the economy grew at a 2.8 percent annual rate, rather than the 3.5 percent pace it estimated last month. * It was still the fastest pace since the third quarter of 2007. The return to growth after four straight quarters of decline in output probably ended the most painful U.S. recession in 70 years. The economy contracted at a 0.7 percent rate in the April-June period. * The growth pace in GDP, which measures total goods and services output within U.S. borders, was a touch below market expectations for a 2.9 percent rate. * Surging imports, which outpaced the growth in exports, restrained the economic growth rate in the third quarter. Imports jumped 20.8 percent, the biggest gain since the second quarter of 1985, instead of 16.4 percent. They knocked 2.53 percentage points off real GDP, the department said.
T.J. MARTA, CHIEF MARKET STRATEGIST, MARTA ON THE MARKETS,
“It’s a little worse than expected. The consumer still isn’t there. Other data suggest that the effect from ‘cash for clunkers’ and first-time home buyer credits are fading. This will be muted, slow recovery and it will be strewn with setbacks. This is one of those setbacks. I don’t have a lot of high hopes for the U.S. recovery. The lower price index should result in people to back off on their expectations of a Fed hike. I don’t expect the Fed to hike until 2011.”
MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES AMERICA, NEW
“The economy was not as strong in the third quarter as originally estimated. The revision supports the view that this is not going to be a V-shaped recovery.”
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:
“It’s not a big number, but it did present the revision in the worst possible light since it was entirely due to final sales not being as strong as first thought. There were downward revisions to every final spending category other than government. The good news was that disposable income was not quite as weak as first reported. No one will draw conclusions about the fourth quarter from these numbers and early indications on this quarter do not look strong.”
JULIA CORONADO, SENIOR US ECONOMIST, BNP PARIBAS, NEW YORK:
“It was pretty much in line with our expectations—we were looking for 2.7. The incoming data had suggested weaker construction.
“This demonstrates that the rebound was a little bit more subdued than the first print had suggested and highlights some of the headwinds to growth that could continue.
“If anything, this strengthens the Treasury market in the sense that to the extent we think the recovery might be subdued there are going to be plenty of people out there who want the safety of Treasuries.”
LAWRENCE GLAZER, MANAGING PARTNER, MAYFLOWER ADVISORS, BOSTON:
“That is a very significant increase in corporate profits and good for people looking to justify the recent corporate debt rally. Some of the other data like GDP will be more widely watched.”
“The revisions came in pretty much within expectations. The one good taken away is a bigger-than-expected drawdown in inventory. That sets up for a better fourth quarter GDP with more restocking. It don’t expect a whole of market reactions. There will be more data later today which will be fresher.”
MARKET REACTION: STOCKS: U.S. stock index futures pared gains. BONDS: U.S. Treasury debt prices rose slightly. DOLLAR: U.S. dollar was weaker against the yen, stronger against the euro.