NEW YORK (Reuters) - The U.S. economy grew in the third quarter for the first time in a year as consumer spending and investment in new home-building rebounded, data showed on Thursday, unofficially ending the worst recession in 70 years.
TIM GHRISKEY, CHIEF INVESTMENT OFFICER, SOLARIS ASSET MANAGEMENT IN BEDFORD HILLS, NEW YORK:
"The futures have reacted predictably, very strongly and we are at least going to start the market out making up part of yesterday's losses.
On the Fed: "We don't think this GDP report tips the scale yet. We don't think the Fed is anywhere ready to raise rates. The Fed will only start raising rates once it feels the economy is on solid footing, and has the potential to become speculative, where inflation might become an issue, and we are a long way away from inflation becoming an issue. So we firmly believe the Fed will remain on the sidelines and be more of a cheerleader for this economy rather than trying to put out a fire."
NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS
"We saw clear improvement on the foreign trade side, I'm not talking about the contribution to GDP, I'm talking about the fact that both exports and imports were up strongly, which is a big indication of trade activity coming back.
"There's still a question of how long you can sustain growth at this sort of rate. My guess is we might do it in the fourth quarter, but we're probably going to have some slowdown when we get into the first half of next year.
"We've had an initial bounce from an exceptionally low level... So, good news that we've bounced, and quite possibly the fourth quarter will be another decent quarter. But we got to still be concerned as we go into 2010 that we still are working through the after-affects of this financial crisis.
"We've still got to work through another what's likely to be major downturn in commercial real estate. We're still working our way through out of a deep hole, but I think it's going to be a very long process to digging out of this."
"The GDP report was what people expected as of a week ago, but since then everyone had lowered their forecast.
"There are two important aspects of this report. One is that consumer spending was artificially strong in the third quarter, up 3.4 percent, because of the cash-for-clunkers auto buying incentive program, because of spending related to home buying linked to the new home-buyers tax credit, and due to a drop in the savings rate.
"Most people think there was some borrowing -- in terms of consumer spending -- in the third quarter from the fourth quarter and that the underlying consumer spending number is probably closer to 2 percent.
"The second takeaway from the Q3 GDP report is that there is still very large inventory liquidation, but it wasn't as much as the second quarter and that added a percentage point to growth. So even though the headline number is 3.5 percent, it feels like the kind of number that, at best, would keep the unemployment rate unchanged: more like 2 percent GDP growth. So growth was soggier than it looks.
"The implications for Fed policy are twofold. The Fed is afraid growth is petering out going into the fourth quarter and at the same time core inflation seems to be stabilizing at 1.5 percent which is probably too low. So this report is consistent with a Fed tightening in the second half of next year at the earliest.
"That said, the Fed is toying with a draft that will include a change in wording to suggest that the Fed is taking another step towards removing some monetary accommodation. They may get rid of the phrase 'extended period' and go back to the language they had earlier in January was just keep rates low without specifying for an extended period. But the Fed is concerned that the investors they refer to as the 'C students' will treat that language change as a signal that they will tighten at the next FOMC monetary policy meeting so they have to be careful how they rephrase the statement."
PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY CITY, NEW JERSEY:
"This really is extremely encouraging, and better than what most optimists had expected this morning. It does have ramifications. It's a trend-changer. It will impact equity, gold, debt, you name it. It will be seen as the beginning of change towards growth in production in the U.S. and the world is going to pay close attention to this. Its a birth of a new cycle. What does it mean for interest rates? There will be a sudden change in language or tone but no change in rates, at least not in the next meeting."
CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO-MITSUBISHI, NEW YORK:
"Sure the economy's standing up on its own legs again, but for how long once the Government stimulus starts to fade? That's the million dollar question for the nation's unemployed all 15.1 million of them sitting idle through no fault of their own. It is the biggest financial crisis since the Great Depression and while the economy will not break that depression record, this could well be the slowest recovery on record.
"The economy's up and running again after four straight quarters of decline. So the recession is officially over with this report today, but it won't feel that way for the 15 million people out of work.
"There is a real question mark over whether this upswing in the economy is sustainable once the government stimulus fades and the fed starts to withdraw the hundreds of millions of excess liquidity it injected to save Wall Street last year."
"There are some self sustaining elements in the report that suggests this isn't a one-quarter trick."
"Despite being in debt up to their eyeballs, consumers are definitely back to spending. The housing bubble that burst and led to housing starts dragging down growth has completely turned around and is now adding 0.5 percentage points to growth."
"(The Fed) might tell people that given the condition of the economy we are clearly no longer in recession and all this stimulus is no longer needed. (At next week's policy meeting) they might put in some language suggesting that the day will be coming when they start to withdraw that liquidity."
"I am very happy with the GDP number. I was concerned after what we saw in the U.K., but this is a positive sign that the stimulus is working. If we had pumped in trillions and then saw a negative number, that would be an incredibly bad sign for the markets.
"Initial claims were worse than expected, but in line with last week. Despite that, the labour market remains the biggest concern for the economy. GDP is positive, but the reality is that employment is abysmal. We'll get a good kick off the GDP today, but labour is going to continue to slow us down in the fourth quarter.
"It's tough to tell if we get more quarters with negative GDP. To continue at 3.5 percent would be difficult. I expect us to drop down near zero in the fourth quarter and first quarter of 2010 as the Fed pares down programs."
KEVIN FLANAGAN, FIXED INCOME STRATEGIST FOR GLOBAL WEALTH MANAGEMENT, MORGAN STANLEY, PURCHASE, NEW YORK:
"The headline GDP number is putting the selling pressure into Treasuries. Claims are essentially a wash with neutral market impact.
"Better than expected GDP is confirming that the Great Recession has ended.
"The question going forward is, is this more of a statistical recovery or are we going to get some meaningful momentum on a sustained basis."
SACHA TIHANYI, CURRENCY STRATEGIST, SCOTIA CAPITAL, TORONTO:
"Definitely above expectations. Though only a first estimate, this will help to arrest some of the strong U.S. dollar buying on risk aversion that we have seen over the past few sessions. GDP will dominate."
MARKET REACTION: STOCKS: U.S. stock index futures rallied. BONDS: U.S. Treasury debt prices added to losses. DOLLAR: U.S. dollar fell against the euro; rose against the yen.