GDP Growth Jumps to 3.9%, Exports Soar

by: Roy Mehta

The Commerce Department reported third-quarter GDP grew at an annual rate of 3.9%, helped by a jump in exports and strong consumer spending. The figure represented an increase over the 3.8% reported in the previous quarter, and the 0.6% reported in the first quarter. The 3.9% rate was the largest since the first quarter of 2006, and was well ahead of economists' forecasts of 3.2%. Consumer spending jumped 3.0% and international trade, which was responsible for 0.93 percentage points of the GDP, surged 16.2%. Because of the challenging economic events of the quarter, the number did surprise many, but the effects from the housing slump and the credit crisis will be seen in future quarters as well. "The credit crunch hit in August and the economy came into that period in pretty good shape," Stephen Stanley, chief U.S. economist at RBS Greenwich, said before the report. "We're looking for that drag to hit more sharply in the fourth quarter." Also, despite worries of higher commodity prices, the GDP price index, the broadest indicator of price changes in the economy, increased to just 0.8% annualized, a nine year low. This figure should ease the Fed's worries of inflation. Markets traded higher on the GDP release, but the looming Fed decision later today should keep gains somewhat modest until then.

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