Economy Grows Faster Than Expected In Third Quarter

In the space of two months, conventional wisdom about the economy has gone from optimism to despair to slight optimism again.

Much of the despair was about Europe. When it looked like the European Union might fall apart over what to do about a bankrupt Greece, stock markets plunged, along with commodity prices like oil. For a while, consumers enjoyed $3 a gallon prices at the gas pump while many expects predicted another recession was all but certain.

But just this week Europe backed away from the ledge and the U.S. Government reported that the nation's Gross Domestic Product (GDP), what we usually refer to as “the economy,” grew by 2.5 percent in the third quarter of the year, a significant pick-up from the first and second quarters.

The news all but put an end to recession talk. The increase in economic activity in the third quarter was driven by both the business and consumer sectors – both of whom spent money in spite of the constant drum beat of negative news.

Did lower gas prices help?

Ironically, it may have been the drop in gasoline prices over the late summer that spurred some of the consumer spending. Motorists found they were spending less at the pump and may have been inclined to spend more on discretionary items. Now that it appears another recession is of the table, oil prices are likely to go higher, pulling gasoline prices with them.

Early in the week economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa., saw signs of an improving economy in a variety of other data.

“Can we finally put to bed the notion that the economy is teetering on the brink of a double-dip recession?” Naroff asked. “Durable goods order fell in September but only because the hugely volatile aircraft sector tanked. Excluding both domestic and defense aircraft orders, where increases or decreases don't do much to near term activity, demand for big-ticket items soared.”