US economy picks up steam

US Economy Picks Up Steam in Q3; Growth Hits 2.0%

Tepid recovery still not at level expected to generate jobs in significant numbers.

The U.S. economy picked up steam in the third quarter after a tepid second quarter, growing at an annual pace of 2.0% as consumer spending and home sales rose, the Commerce Department said Friday.

The better-than-expected GDP numbers came less than two weeks before the November 6 presidential election.

President Barack Obama and Republican nominee Mitt Romney remained locked in a tight race, with Obama's fate tied in part to how voters judge his record in restoring economic growth.

The expansion in gross domestic product -- a measure of the nation's goods and services output -- in the July-September quarter was bolstered by increases in household spending; federal government spending, mostly for national defense; and investment in homes amid an improving housing market, the government reported.

Growth in part was offset by a severe drought that gripped the Midwest, reducing farm inventories and slashing 0.4 point from the growth rate.

The department's first estimate for the third quarter was a bit stronger than the 1.9% expected by most analysts.

Housing investment added 0.3 point to GDP growth, but that contribution was offset by a decline in exports amid a weakening global economy and a drop in inventories.

Still, growth remains below the pace of about 2.5% analysts estimate is needed to significantly bring down high unemployment, currently at 7.8%.

"Growth was fairly resilient, with inventories relatively unchanged," said Christopher Vecchio, a currency analyst at DailyFX.

"Nevertheless, this is still not the stable recovery the Federal Reserve is looking for, as noted at their policy meeting this past week."

Vecchio forecast the Fed would step up asset purchases when Operation Twist finishes in two months and the central bank would announce at its December meeting further stimulus measures.

Toxic Combination

Alan Tonelson, an economist with U.S. Business and Industry Council, said the economy “remains heavily dependent for growth on personal consumption and housing – the toxic combination that led directly to the financial crisis and deep ensuing recession.”

Business investment, which he said “fosters the kind of healthy growth desperately needed by the economy,” was slightly down from the second quarter. “And net exports, another potential engine of healthy expansion, turned from a modest growth promoter to a modest growth drag,” he said.

“Three years into the expansion and the average annualized quarterly growth rate for the U.S. economy is holding at 2%,” said Beata Caranci, vice president and deputy chief economist for TD Economics.“There is no snap, crackle or pop to this recovery cycle, just a lot of fizzle. We think the next two quarters will reflect more of the same, with real GDP growth likely to hover slightly below the 2% threshold.”

Additional reporting by Steve Minter.

Copyright 2012 Agence France-Presse

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