The United States economy grew at an annual rate of 2 percent in the third quarter, slightly better than expected, with help from a healthier housing sector and a pickup in defense spending. But economists warn that growth could slow in the final quarter of the year if weakness in exports persists and businesses remain cautious because of fiscal uncertainty in Washington.
The new figure, released by the Commerce Department on Friday, is the government’s first estimate of growth in the third quarter. It compares with the 1.3 percent pace of growth in the second quarter. In the first quarter of 2012, the economy also grew by 2 percent.
The slow pace of growth since the end of the recession has been a dominant theme in the presidential race, with Republicans pointing to recent data as evidence that the economy is moving too slowly to make a meaningful dent in unemployment.
But there were several elements of good news for the White House in Friday’s report. Consumer spending rose at a seasonally adjusted annual rate of 2 percent, compared with 1.5 percent in the second quarter. Residential investment increased at an annual rate of 14.4 percent in the third quarter, versus 8.5 percent in the second quarter, a positive sign for the housing sector.
“All in, today’s report showed somewhat faster domestic demand driven by the household sector,” said Maury Harris, chief economist at UBS Securities.
The report comes amid fears that companies are clamping down on spending in the face of potential tax increases and spending cuts in the United States, a recession in parts of Europe and a deceleration in demand from China. Some economists fear that all these factors will keep a lid on any pickup in growth in the final quarter of 2012 and the first quarter of 2013.
Friday’s report, for example, showed that exports decreased by 1.6 percent in the latest quarter, compared with a 5.3percent increase in the second quarter. It was the first time exports had fallen since the first quarter of 2009, when the global economy was reeling from the collapse of Lehman Brothers and the ensuing financial crisis in the United States.
In recent days, government data and a steady drumbeat of disappointing earnings reports from corporate bellwethers have suggested that companies are becoming more cautious. On Thursday, the Commerce Department reported that orders for nondefense capital goods, excluding aircraft, were flat in September, disappointing experts who had forecast a slight gain.
There have already been several layoff announcements this week from big American companies like Dow Chemical and DuPont. That list grew Friday, with Newell Rubbermaid announcing plans to cut 2,000 workers, or just over 10 percent of its work force, while Rockwell Collins said it would eliminate 1,250 jobs, equivalent to roughly 6 percent of its staff.
Despite the hesitancy among businesses, the nascent recovery in the housing market and a slight drop in the unemployment rate are translating into more optimism among consumers. A survey released Friday showed consumer sentiment at its highest level in more than five years, with the Thomson Reuters/University of Michigan index rising to 82.6 in October from 78.3 in September, though it was lower than a preliminary October reading of 83.1 reported earlier.
Nigel Gault, chief United States economist for IHS Global Insight, added that while the uncertainty hanging over businesses did not seem to be affecting consumers, that could change if Washington did not avert a wave of tax increases and automatic spending cuts set to go into effect early next year.
This so-called fiscal cliff is already being blamed for a chill in spending on equipment and software by businesses, which fell 0.1 percent in the third quarter. “Consumers are not so forward looking as businesses,” Mr. Gault said. “So there are two ways this can go. Either we clear up the uncertainty or consumers start focusing on the fiscal cliff and we see consumer spending hurt as well.”
Among the biggest factors in the uptick of growth in the gross domestic product was a 13 percent jump in defense spending. On the other hand, a drop in farm inventories —fallout from the severe drought this summer — shaved 0.4 percent off overall growth.
Without the increase from defense spending, the economy would have grown at an annual rate of 1.4 percent, said Steve Blitz, chief economist at ITG Investment Research.
“The economy really just continues to churn at a very slow rate,” he said. Two big engines that initially powered the economy in the wake of the recession — exports and business investment — have both been fading recently, he said, and that does not bode well for growth.
[This article was originally published by the New York Times on October 26, 2012. It was written by Nelson D. Schwartz.]
