November 24th, 2009
04:48 PM ET

Financial Dispatch: Economic rebound not as strong as first thought

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Andrew Torgan
CNN Financial News Producer

Do you remember last month when everyone was so pleased to hear the U.S. economy grew at an annual rate of 3.5% in the third quarter?

Well, not so fast…

A revised reading of gross domestic product from the government out today shows the economy actually grew at a rate of 2.8%. True, that's not as good as originally thought, but it’s still growth - and it comes after a record four quarters in a row of contraction.

So what's behind the downgrade?

A few things, actually - including weak consumer spending, a slowdown in commercial construction and a widening trade deficit.

Even with the positive growth, it's expected that things will be slow moving forward, and the GDP number still needs to be revised one more time.

In a somewhat ironic bit of timing, the Federal Reserve today released the minutes of its meeting earlier this month during which it raised its estimate for economic growth next year and forecast lower unemployment ahead - although it said the jobless rate will stay uncomfortably high for at least the next three years.

The forecast also shows the central bank expects GDP to grow between 2.5% to 3.5% in 2010. That's a bit more bullish than the 2.1% to 3.3% growth it had forecast for the period back in June.

The unemployment rate, which hit 10.2% in October according to the Labor Department's latest reading, is expected to improve to between 9.3% and 9.7% for all of 2010. The Fed's June forecast was for 2010 unemployment to hover between 9.5% and 9.8%.

The Fed’s forecasts don't show the labor market getting a lot better in the next few years. Its 2011 forecast is for unemployment of between 8.2% and 8.6%, while 2012 unemployment is expected to be between 6.8% and 7.5%, still above the average 6% annual unemployment rate recorded by the Labor Dept. over the last 30 years.

Also out today were two separate takes on the housing market.

Home prices rose for the second straight quarter, but remained nearly 9% lower than a year earlier.

Prices nationwide rose 3.1% in the three months ended Sept. 30, according to the S&P/Case-Shiller Home Price Index, a closely watched gauge of housing market direction. That followed a similar 3.1% rise during the second quarter.

Prices were still below a year ago, however, down 8.9% compared with the third quarter of 2008. Nevertheless, that's an improvement from the double-digit price decreases the index had been reporting.

And in a sign that more foreclosures could be on the horizon, a new report says 23% of people with mortgages owe more than their home is worth.

Almost 10.7 million U.S. mortgages were “underwater” as of September, according to research firm First American CoreLogic.

Another 2.3 million homeowners are within 5% of negative territory, the report said. The two figures combined comprise almost 28% of all residential properties with mortgages.

Finally, the number of people shopping on “Black Friday” is expected to pick up more than 16% this year, according to a new survey.

A staggering 57 million people said they would “definitely” head to stores on the day after Thanksgiving, up from 49 million in 2008, according to a survey by the National Retail Federation.

An additional 77 million said they would wait to decide after seeing the weekend deals.

Follow the money… on Twitter: @AndrewTorganCNN

Filed under: Andrew Torgan • Finance
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