US GDP rises 2% in third quarter

REUTERS

WASHINGTON

ECONOMIC growth picked up in the third quarter as a late burst in consumer spending offset the first cutbacks in investment in more than a year by cautious businesses.

Gross domestic product expanded at a 2 percent annual rate, the Commerce Department said on Friday, accelerating from the second quarter’s 1.3 percent pace.

Still, the stronger pace of expansion fell short of what is needed to make much of a dent in unemployment, and details of the report did not bode well for an acceleration in output in the fourth quarter, as a spurt in government spending was see as temporary.

A growth pace in excess of 2.5 percent is needed over several quarters to make substantial headway cutting the jobless rate.

Economists polled by Reuters had expected a 1.9 percent growth pace in the third quarter.

The report offers little cheer for the White House ahead of the closely contested November 6 presidential election, in which President Barack Obama is trying to fend off Republican challenger Mitt Romney.

US stocks pared losses after the data, while Treasuries briefly cut early price gains.

The dollar trimmed losses against the yen, and cut gains against the euro.

Since climbing out of the 2007- 09 recession, the economy has faced a series of headwinds from high gasoline prices to the debt turmoil in Europe and, lately, fears of U.S. government austerity.

It has struggled to exceed a 2 percent growth pace and remains about 4.5 million jobs short of where it stood when the downturn started.

Consumers, however, largely shrugged off the impending sharp cuts in government spending and higher taxes, which are due at the start of the year absent congressional action.

Indeed, they went on a bit of a shopping spree as the quarter wound down, buying a range of goods - including automobiles and Apple’s iPhone 5
Consumer spending, which accounts for about 70 percent of US economic activity, grew at a 2 percent rate after increasing 1.5 percent in the prior period.

High stock prices and firming house values have made households a bit more willing to take on new debt, supporting consumer spending.

The faster pace of spending was achieved despite a spike in inflation pressures as gasoline prices rose. A price index for personal spending rose at a 1.8 percent rate, accelerating from the second quarter’s 0.7 percent pace.

But a core inflation measure that strips out food and energy costs slowed to a 1.3 percent rate after rising 1.7 percent in the prior quarter, suggesting the increase in overall price pressures will be temporary.