Economy grew briskly in third quarter

The ill effects of the housing slump and credit crunch didn't deter consumers in the summer.

Consumers, whose spending is an important ingredient for the economy's good health, actually rediscovered their appetite to spend in the third quarter. Their spending rose at a 3 percent pace, a considerable improvement from the second quarter's rather weak 1.4 percent growth rate.

One of the reasons why people are continuing to spend is because the nation's employment climate has managed to stay fairly sturdy through all the problems. Wage and job gains have served as shock absorbers for some of the negative forces of the housing slump, weaker home prices and more restrictive credit.

Another report from the Labor Department showed employers' costs to hire and retain workers rose 0.8 percent in the July-to-September quarter. That was down a bit from a 0.9 percent increase posted in the second quarter, but still suggested workers are seeing solid compensation gains.

Businesses, meanwhile, increased their spending on equipment and software at a 5.9 percent pace in the third quarter, the strongest in 1 1/2 years. They also boosted their investment in inventories, another factor that added to GDP.

Strong sales of U.S. exports to foreign buyers was another big factor in the good third-quarter showing. Exports grew by 16.2 percent, on an annualized basis, during the quarter. That was the biggest increase since the final quarter of 2003.

Business investment in commercial structures, such as office buildings and factories, grew at a 12.3 percent pace in the third quarter. It was a robust showing but down from a sizzling 26.2 percent growth rate in the second quarter.

Government spending also contributed to third quarter GDP growth. Such spending rose at a rate of 3.7 percent, following a 4.1 percent pace in the second quarter.

As the economy picked up a bit of speed, so did inflation, although the rise was not seen as worrisome.

An inflation gauge closely watched by the Federal Reserve showed "core" prices — excluding food and energy _ rose at a rate of 1.8 percent in the third quarter. That was up from a 1.4 percent pace in the second quarter, but it was within the Fed's "comfort zone."

Still, skyrocketing oil prices, which have reached record highs in recent days, could push up inflation and put a chill on consumer spending.

The meltdown in the mortgage market has made it harder for people to obtain financing to buy homes. That's aggravating problems in the housing market and leading to a mounting pileup of unsold homes. The housing slump is expected to drag on well into next year.

Against that backdrop, the Fed's overriding worry is that problems in housing and harder-to-get credit could seriously crimp spending and investing, dealing a dangerous blow to the national economy. Growth in the current October-to-December quarter is expected to slow to a pace of around 2 percent or less, according to some projections.

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks up a third day, helped by housing report Home sales surge, boosting recovery hopes Home resales surge to nearly 3-year high Advocates want more for black unemployed Oil markets could settle after OPEC inaction States’ jobless funds going ‘absolutely broke’ Economists: We don't need more stimulus Few borrowers helped by modified mortgages  Rebound leads AP’s top business stories of ’09 Investors want to believe in ‘Santa Claus rally’ Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: