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Economy is holding its own, government report says

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The U.S. economy is no longer the incredible shrinking machine, judging by a report today from the U.S. Commerce Department.

A jump in government spending and smaller cutbacks by consumers helped offset a plunge in inventories and resulted in a 1 percent decline in gross domestic product, the same rate of decline that was calculated last month, according to a Bloomberg report on the government data.

Economists surveyed by Bloomberg had predicted a 1.5 percent drop.

Corporate profits rose the most in four years, the Commerce Department said.

Companies from Wal-Mart Stores Inc. to Macy’s Inc. cut costs and stockpiles to bolster earnings as job losses caused consumers to curb spending, Bloomberg reported.

Leaner stocks and government programs to revive demand, including the recently ended “cash for clunkers” program and incentives for first-time home buyers, are boosting manufacturing and housing, Bloomberg said.

The stimulus “should reinforce growth going into next year,” Scott Brown, chief economist at Raymond James & Associates Inc., told Bloomberg. The gain in profits “sets the stage for a broader recovery,” he said.

A separate report today showed that fewer Americans filed claims for unemployment benefits last week, reinforcing evidence that the labor-market downturn is easing. Initial jobless claims dropped to 570,000 from 580,000 the previous week, the U.S. Labor Department said.