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Consumers, businesses boost US economy; 5 things we learn from GDP report

The US economy grew 2 percent in the third quarter, the Commerce Department reports. But imports limited the benefit to the GDP from increased consumer and business spending.

By Ron SchererStaff writer / October 29, 2010

President Barack Obama pushes buttons on a machine as he talks to a Stromberg Metal Works employee during a tour of the company in Beltsville, Md., Friday.

Susan Walsh/AP

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Consumers and businesses gave the US economy a lift this summer, but it appears their taste for imports limited the benefit from their increased spending.

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In the government’s initial look at the economy’s performance between July and September, the US Commerce Department reported Friday that the Gross Domestic Product eked out an annual growth rate of 2 percent, up from 1.7 percent in the second quarter.

Most of the growth came from consumer spending, companies adding to their inventories, business investment, and some left-over fiscal stimulus spending.

However, US consumers and businesses also purchased a lot of goods from overseas. Those imports lowered the Commerce Department’s calculated growth rate by 2 full percentage points.

“The imports were the difference between strong growth and lackluster growth,” says Joel Naroff of Naroff Economic Advisors in Holland, Pa.

Although the GDP report is a look through a rearview mirror, it also gives some views of what is happening to the US economy. Here are five things economists say can be learned from the report:

Consumers

Consumers are doing their part to stimulate the economy. Over the summer consumer spending, spurred by purchases of small items, rose by a 2.6 percent annual pace, the best performance for the consumer since 2006.

“They are buying smaller things, personal goods, nondurables, using more services such as taking their clothes to the dry cleaners,” says Mr. Naroff.

Businesses

Businesses are buying computers, software and other high-tech goods. This boosted the economy by 0.8 percentage points. Business spending on such goods rose by 12 percent for the quarter, the fourth consecutive quarter of double digit gains.

“They are finding the dollars and they are spending them,” says Naroff. “This tells me businesses are a little more confident.”

Inventories

Companies decided to rebuild their inventories. This added 1.44 percentage points to the economy, notes Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

“This is not surprising, business typically builds inventory in anticipation of holiday sales,” says Mr. Dickson. “I think the seasonal aspect explains some of it.”

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