U.S. GDP Rises On Government Stimulus Ending Recession

The U.S. economy expanded 3.5% in the third quarter as government stimulus helped end four consecutive quarters of contraction. The three month period from June to September had the largest level of growth in nearly two years as programs such as the “cash for clunkers” led to a 3.4% rise in personal consumption -the biggest improvement since the beginning of 2007.  The possible ending of the $8,000 tax credit for new homebuyers spurred a 23.4% increase in residential investment which pushed total gross private investment to 11.5% as it offset declines in nonresidential and structures of -2.5% and -9.0% respectively.  The lack of growth outside of government programs continues to be a concern for market participants and raises the question of whether the recovery will be sustainable when the aide dissipates. However, the government has pledged to maintained stimulus efforts until there are signs of sustainable growth. Yesterday, saw key Senators strike a deal to extend the housing stimulus measure through the end of April, and expand its parameters to include existing home owners looking to buy a new home. The new measure reportedly will also raise the minimum income levels to individuals making up to $125,000 a year and couples earning up to $225,000 per year, up from the current income limits of $75,000 and $150,000, respectively. We saw broad based optimism on the growth figures which fueled risk appetite fueling demand for high yielding assets. The dollar has started to give back recent gains that were earned on growing pessimism and with equity markets off to a strong start we may see it continue.