Economic growth picked up in summer

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The nation’s economic growth accelerated modestly in the summer quarter, rising to a 2 percent annual rate from the sluggish 1.3 percent seen in the spring, the Commerce Department reported Friday morning.

The growth revival gives a small boost to President Obama, coming only two weeks before the election in a tight race. It reflected stronger spending by consumers, especially on cars and other big-ticket purchases. Consumer spending increased to a 2 percent pace from 1.5 percent in the spring, led by an 8 percent surge in spending on durable goods.

Housing investment also gave a significant boost to the economy in the summer, shooting up by 14.4 percent and maintaining its impressive double-digit pace of recovery this year. The housing sector had been a major drag on economic growth from 2007 to 2011, but many forecasters are optimistic that it has turned the corner and will lead the economy to better health from this point on.

But while consumers, who fuel about two-thirds of economic activity, did their part to keep the economy humming last quarter, businesses were in a dour mood and slashed spending on equipment and plants by 1.3 percent and 4.4 percent, respectively.

Exports, another star in the recovery previously, also took a downturn, falling by 1.6 percent as a result of the recession in Europe and slowing growth in major emerging markets such as China and Brazil.

But the decline in business spending was offset by a 13 percent surge in federal spending on defense during the quarter. The state and local government sector also steadied out with zero growth after twelve straight quarters of decline, in what may be a harbinger of recovery in that long-battered sector.

“The U.S. economy regained momentum in the second half of the year,” said Harm Bandholz, economist at Unicredit Research. He noted that the resurgence in consumer spending on autos, houses and other big purchases — fed by a five-year high in consumer confidence — was more than enough to offset weakness in other sectors.

“The tug-of-war between better consumer spending and weaker business spending will continue to shape the development of the economy in the current quarter,” and lead to a further pick-up in growth to 2.5 percent, he said.  

“The outlook for consumer spending remains solid,” as consumers are feeling more secure in their jobs and a bit wealthier because home prices have started to rise again, he said.

The National Retail Federation is also optimistic that the consumer comeback will extend to the coming Christmas season, when it expects sales to rise by an above-average 4.1 percent this year. Retailers plan to add thousands of jobs to handle the busier shopping season they anticipate in the next few months.

Chris Williamson, economist at Markit, said while consumers are stoking a minor economic revival, it’s too early to tell whether the momentum will continue in the fall quarter.

“There are mixed signs for consumer spending,” he said, noting that after-tax incomes, after adjusting for inflation, grew by a “meager” 0.8 percent in the summer after surging by 3 percent in the spring.

“It may transpire that the ebullient mood among consumers gets dented by a lack of cash available to support extra spending,” he said.

Josh Bivens, analyst at the Economic Policy Institute, said the 2 percent growth posted last quarter was about average for the current tepid recovery, and is not much to celebrate.

“Growth rates this low will not reliably lower joblessness in the years to come,” he said. “Whichever candidate wins the presidential race will face an economy needing powerful and sustained policy actions to restore it to full health.”

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