US economy grew at modest rate over summer

The US economy picked up modestly over the summer as consumers and businesses boosted spending. The news added to a strong rally on US stock markets cheered by a breakthrough in talks on the European debt crisis. Gross domestic product (GDP), the broadest measure of all the goods and services produced in an economy, grew 2.5% in the third quarter, its strongest rise in a year and up from 1.3% in the second quarter. The performance is also a considerable improvement on the paltry 0.4% growth achieved in the first quarter of 2011. The latest figures from the Commerce Department came as the US reported a drop in unemployment benefits claims last week, although unemployment remains high and the latest measures of consumer confidence have hit lows unseen since the depths of the recession. The third quarter GDP figures show consumer spent more on durable goods like cars and refrigerators and business investment surged in the third quarter. Real personal consumption increased 2.4% in the third quarter, compared with an increase of 0.7% in the second. Durable goods increased 4.1%, in contrast to a decrease of 5.3%. Businesses also are investing, especially in equipment and software. Nonresidential fixed investment jumped 16.3% after a 10.3% rise in the second quarter. The numbers came as European and US markets rallied following yesterday's breakthrough talks on the European debt crisis. US markets opened sharply up in reaction to news that European leaders had negotiated a 50% cut on Greek debt with banks. But economists gave the latest GDP figures a mixed reception. Kathy Bostjancic, director for macroeconomic analysis, at the Conference Board, said this summer recovery doesn't look sustainable. "Continued woes in the housing market are overshadowed by consumer concern over the anaemic labour market, as highlighted by the decline in consumer sentiment back to 2008-09 levels," she said. "Weak sentiment could limit the rise in consumption through the holiday season and right into winter. Further, cuts in spending by state and local municipalities weigh on the economy." David Semmens, US economist at Standard Chartered said the components of the latest GDP figures were better than expected but "we would look for more momentum from business investment and consumer spending before getting too carried away."