U.S. Economy Grew 2.5% in Third Quarter

Real GDP grew at a 2.5% annualized pace in the third quarter of 2011 according to the advance estimate by the Bureau of Economic Analysis. Gains in consumer spending and business investment helped the recovery gain steam. This level of growth improves significantly on the 0.9% rate seen in the first half of 2011.

ABA’s Chief Economist James Chessen commented: “Fears of a double dip have been overblown. The data shows that economic growth in the third quarter was broad based with both consumers and businesses driving the growth.”

Consumption contributed 1.72% to the growth in real GDP. Fixed investment was up as well, contributing 1.60% to real GDP. The fixed investment growth was driven primarily by non-residential growth, which contributed 1.54%. Residential investment was nearly flat contributing 0.05% to growth.

Increases in federal government spending were offset completely by cutbacks in state and local spending that led to a 0% government contribution to GDP growth.

Although 2.5% growth in GDP is a significant improvement over recent quarters, it still represents a relatively weak recovery. In 1Q 2010 we saw a stronger expansion, with the economy growing at 3.93%. Although this report has allayed fears of a double dip, the recovery remains weak and vulnerable to external shocks.

Read the report.