U.S. GDP finally expanded in third quarter

The United States GDP grew in the third quarter ended in September, the first time its economy has expanded in more than a year. The economy expanded at a 3.5% seasonally adjusted annual rate, ending the longest contraction since World War II.

The economy had been falling for four straight quarters, bottoming with a 6.4 percent decline in the first three months of this year, the steepest quarterly fall since 1982. The expansion matched the economy’s average annual growth rate from the last 80 years

The growth was driven by consumer spending, which rose 3.4% in the third quarter. Some of the largest components of growth, for instance, came from spending on car sales and house building, both areas that have been propped up by federal programs.

The recovery is expected to be slow and painful, as companies shed jobs and credit remains tight. Job-seekers probably will not see the benefits of a recovery for months to come.

The stock market surged in reaction to the news, a bigger-than-expected expansion in the U.S. economy. Stocks posted their biggest gain in more than two months Thursday. The Dow finished up 199.89 points, or 2.05%, to 9962.58, its largest one-day point gain since July 15, when it surged 257 points.

The Standard & Poor's 500 rose 2.25% to 1066.11, with gains in all its sectors, led by a 4.3% jump in financials and a 3.2% rise in its materials category.

Home prices continued to rise

The prices of U.S. homes in 20 metropolitan cities continued to rise for the fourth-straight month in August, according to the Case-Shiller home price index. The home price stabilization added to signs of housing market improvement and economic stability in the United States.

In August the price index climbed by a seasonally adjusted 1% compared with July. Prices rose in 17 of 20 cities.

In the past year, the composite index is down 11.3% in the 20 cities. Prices are down 29.3% from the peak. Prices are where they were in the fall of 2003.

The Case-Shiller index lags behind the National Association of Realtors’ report on existing home sales, which have been issued for September. That number also showed improvement. Low prices and mortgage rates combined with the first-time buyers’ tax credit have spurred home sales. Congress is considering extending the tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000.

Some investors have become concerned that such signs of improvement could prompt central banks to withdraw stimulus measures sooner than expected. Another factor likely to obstruct the market in the coming months is an increase in interest rates, as the Federal Reserve ceases its buying mortgage-backed securities.

Confidence returned, Dow reclaimed 10,000 mark

U.S. stocks soared higher sparked by earnings news on Wednesday, Oct. 14, pushing the Dow Jones Industrial Average to close above 10,000 for the first time in more than year. The sharp rally signaled investors' confidence that the economy is recovering from the financial crisis and recession.

SmartInMoney reported that the Dow finished up 144.90 points, or 1.5%, to close at 10,015.86, its highest level since global markets plunge on Oct. 6, 2008, when the Dow fell below 10,000 amid the outbreak of financial crisis on Wall Street. The Dow first closed above 10,000 in May 1999 but retreated in the years after the dot-com bubble deflated. It then regained the 10,000 mark in late 2003 before peaking at 14,000 in October 2007.


Other indexes hit fresh one-year highs as well. The broader S&P 500 stock index gained 1.8% to end at 1,092.02, while the Nasdaq Composite rose 1.5% to 2,172.23.

The Dow is still more than 4,000 points off its all-time highs; while S&P 500, a broader measure of the market, are down 30 percent from their peaks.

The sharp rally was fueled by surprisingly better than expected results from two blue chips, Intel and J.P. Morgan Chase and a smaller decline than anticipated in U.S. retail sales.

Senate committee approved health care bill

The Senate Finance Committee voted on Tuesday to approve legislation that would reshape the American health care system and provide subsidies to help millions of people buy insurance. The vote was 14 to 9, with all of the other Republicans opposed. Senator Olympia J. Snowe, Republican of Maine, joined all 13 Democrats on the panel in support of the landmark bill.

Health care legislation is expected to be on the Senate floor the week after next, said a spokesman for Majority Leader Harry Reid of Nevada. But it won't be the Baucus bill; it will be combination of the Finance version and a more liberal proposal from the health committee.

A 26-Year High Unemployment Undermines Recovery

The economy shed another 263,000 jobs in September and the unemployment rate rose to a 26-year high of 9.8% with 15.1 million people unemployed. The unemployment rate edged up from 9.7 percent in August, according to the Labor Department, and continued to inch toward double digits, a level last seen in June 1983.

Thought the rate of job loss has tapered off compared to the early months of the year, the persistently weak labor market could undermine a promising economic recovery from the worst U.S. recession since the Great Depression.

The bleak report emphasized the risk that without jobs, consumers won't have income to spend and that will restrain growth and give employers little reason to resume hiring after 21 consecutive months of job losses. Without consumers, the economy can’t experience a really strong recovery.

U.S. consumer prices index up in August due to energy prices

U.S. consumer prices index was up 0.4% from July, the Labor Department said Wednesday. The rising gasoline prices by 9.1% pushed overall consumer prices higher in August even as prices for most other goods and services remained in check. Energy prices rose 4.6 percent last month even though they were nearly one-fourth lower than the same period a year ago, when oil prices began to tumble from their record highs of around $145 a barrel.

Core CPI, which excludes food and energy prices, increased 0.1%, suggesting that most costs of living were not following the upward arc of oil and gasoline prices.

Many on Wall Street have warned that the government's immense stimulus measures will eventually lead to inflation, pushing commodity prices sharply higher and further eroding the value of the dollar. These inflation hawks have helped push the price of gold above $1,000 recently, and they point to rising oil and commodities prices as a harbinger.

The Fed officials have insisted that the economic recovery will be too slow to spark a rise in prices. The data is unlikely to change expectations that the Federal Reserve will remain on hold into next year given that core prices remain soft. Unemployment is still high, consumer demand for credit and goods and services is still subdued, and there is enormous slack in the economy.

Investors were happy with the news, as the stocks saw strong gains at the closing bell.

Unemployment rate hits a 26-year high

The unemployment rate rose to its highest level since June 1983, but trend of job losses declined in August.

The Friday's jobs report showed an improving trend. Employers cut jobs in August at the slowest pace in a year. The Labor Department said nonfarm payrolls shed 216,000 jobs in August, fewer than the 276,000 lost in July. Losses in retail and business services narrowed. The biggest gains came in health care.

A jump in the unemployment rate to a 26-year high of 9.7% reinforced worries that a weak labor market. A revised data showed more job losses than previously reported in earlier months. The economy has shed 6.9 million jobs since the recession began in December 2007.

Rising unemployment portends persistent weakness in consumer confidence, income and spending, while manufacturers start bouncing back and stocks revive. Most economists expect the rate to top 10% in coming months and stay over 9% through 2010.

A declining pace of job losses in August helped increase in stock Friday afternoon. Traders focused on a decline pace in payrolls instead of the unemployment rate's rise.

Charts: Courtesy of WSJ.com