U.S. Economy Grows in Third Quarter
Following four consecutive quarters of contraction, the United States economy grew in the third quarter of 2009, increasing hopes of a strong recovery and a return to economic health sooner than expected.

Real gross domestic product (GDP), which reflects the total output of goods and services produced nationwide, rose at an annual rate of 3.5 percent in the third quarter, according to the U.S. Department of Commerce on Thursday. The boost in GDP was the first since Q2 2008 and marked the strongest gain since the third quarter of 2007.

The Commerce Department attributed much of the gain to an increase in consumer spending, which added 2.36 percentage points to the increase, while exports accounted for 1.5 percent and sales of motor vehicles and parts constituted 1 percent.

"Thursday's report on GDP... frames an economy that has started to emerge from the recession. The housing market is at or near a bottom, economists say, and metrics from manufacturing output to consumer spending have recovered from the deepest levels of the downturn," the Wall Street Journal reports (subscription required).

Despite the positive signs, concerns remain over a weakened job market and significantly elevated unemployment. According to the Journal, expectations of slow growth in demand coupled with increased productivity make it unlikely that new hiring will occur on a large-scale in the near future. (More on the nation's unemployment situation tomorrow.)

"Employers need to be convinced the economic recovery is here to stay," the Chicago Tribune says. "And even if they clear that psychological hurdle, their first move will be expanding hours for existing workers rather than hiring new ones."

Manufacturing Activity: New Orders Pick Up
New orders for manufactured durable goods increased 1 percent in September, reaching $165.7 billion, the U.S. Census Bureau announced last week. This was the second increase in the last three months, following a 2.6 percent drop in August.

Machinery sales, up five of the last six months, had the largest increase in September. New machinery orders rose 7.9 percent, reaching $23.4 billion.

"Machinery demand rose by nearly 8 percent during September. But this only compensates for weak machinery activity during the past two months while demand remains nearly 30 percent below year-ago levels," Cliff Waldman, economist for the Manufacturers Alliance/MAPI, said in an analysis of the government report.

"Further, activity was nearly flat in the primary and fabricated metals sectors, which should, at this point, be showing more convincing strength if a normal factory sector recovery were in progress," Waldman added. "Encouragingly, new orders for non-defense capital goods excluding aircraft, a proxy for business equipment spending, rose by a sharp 2 percent but only after two months of decline. Clearly, the more than 7 percent annualized gain in manufacturing output during the third quarter was driven by a leveling in what has been a rapid inventory liquidation, an output catalyst that will likely continue through the end of the year."

The continuing strength of new orders appears to be helping drive production in the manufacturing sector, which grew for the third consecutive month in October, according to the Institute for Supply Management (ISM) today. The latest ISM index of new orders registered 58.5 percent in October, marking the fourth consecutive month of growth in new orders. At 55.7 percent, the rate of overall manufacturing growth is the highest since April 2006, when the ISM's purchasing managers index (PMI) registered 56 percent.

In the latest edition of the PricewaterhouseCoopers LLP Manufacturing Barometer, released last week, 57 percent of U.S.-based industrial manufacturers said they expect positive growth over the next 12 months, with 12 percent predicting double-digit growth and 45 percent expecting single-digit growth.

Consumer Confidence Drops
The Conference Board's latest Consumer Confidence Index points to continued declines in October, the second consecutive month of contracting consumer confidence. The Index, reported last week, fell to 47.7 from 53.4 in September, indicating public worry over the sustained strength of the economic recovery.

Consumers' perceptions of current economic conditions worsened from the previous month. The number of respondents claiming conditions are "bad" rose from 46.3 to 47.1 percent, while those who believe conditions are "good" fell from 8.6 percent to 7.7 percent, the report found.

Consumer assessments of the job market were similarly down. Those claiming jobs are currently "hard to get" rose from 47 percent to 49.6 percent, while those claiming jobs are "plentiful" fell from 3.6 percent to 3.4 percent.

"Consumers' assessment of present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment," Lynn Franco, director of The Conference Board Consumer Research Center, said in an announcement of the findings.

"The short-term outlook has also grown more negative, as a greater proportion of consumers anticipate business and labor market conditions will worsen in the months ahead. Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays," Franco added.

House Unveils Health Care Bill
On Thursday, the House of Representatives introduced the Affordable Health Care for America Act, a $1.055 trillion health-care package that would provide insurance to up to 36 million Americans. The bill, H.R. 3962, would broadly expand Medicaid, the state-federal insurance program for the poor, and offer subsidies to moderate-income Americans to buy insurance either from private carriers or a new government-run plan, the New York Times reported last week.

According to a preliminary analysis of H.R. 3962, issued by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), the Affordable Health Care for America Act would:

• Establish a mandate for most legal residents of the United States to obtain health insurance;
• Set up insurance "exchanges" through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage;
• Significantly expand eligibility for Medicaid;
• Substantially reduce the growth of Medicare's payment rates for most services (relative to the growth rates projected under current law);
• Impose an income tax surcharge on high-income individuals; and
• Make various other changes to the federal tax code, Medicaid, Medicare and other programs.

H.R. 3962 is similar in size and scope to a bill taking shape in the Senate, however "a major point of contention between the House and the Senate is how to pay for the new coverage, to be provided by expanding eligibility for Medicaid and by subsidizing insurance for low- and middle-income people," according to a separate New York Times report. "The Senate bill would impose an excise tax on high-premium insurance policies provided by employers. The House bill would impose a surtax on high-income people — couples with adjusted gross incomes over $1 million a year and individuals over $500,000."

The CBO and the JCT estimate the bill will reduce the national deficit by at least $100 billion over 10 years.

The bill — a combination of three versions passed by House committees — will cost $894 billion over 10 years to extend insurance coverage to 36 million uninsured Americans, according to House Speaker Nancy Pelosi. However, the bill's total cost is $1.055 trillion, which is the gross cost of the insurance coverage provisions in the bill before taking account of certain new revenues, including penalties by individuals and employers who fail to meet new insurance requirements in the bill.

The bill guarantees that 96 percent of Americans have coverage, Pelosi said. The budget office said 18 million people, one-third of them illegal immigrants, would still be uninsured by 2019.

Additional (government) information on the bill: Short Summary of the Bill | Detailed Summary of the Bill (UPDATED 11/2)