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American economy expands at modest 2 percent pace

Associated Press Modified: October 26, 2012 at 5:45 pm •  Published: October 26, 2012
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WASHINGTON (AP) — The latest snapshot of economic growth shows the U.S. recovery remains tepid.

Growth in the July-September quarter climbed slightly but was still too weak to stir significantly more hiring. The pace of expansion rose to a 2 percent annual rate from 1.3 percent in the April-June quarter, led by more consumer and government spending.

Voters who are still undecided about the presidential election aren't likely to be swayed by Friday's mixed report from the Commerce Department.

"For the average American, I don't think changes in quarterly GDP" make a big difference in their perception of the economy, said Andrew Kohut, president of the Pew Research Center. "It's certainly good for the president that the number is not bad because that would resonate."

With 11 days until the election, the economy is being kept afloat by a revitalized consumer and the early stages of a housing recovery. But more than three years after the Great Recession ended, the nation continues to struggle because businesses are reluctant to invest, and slower global growth has cut demand for American exports.

Republican nominee Mitt Romney is telling voters that President Barack Obama's policies have kept the economy from accelerating and have even slowed growth in the past two years. The 1.7 percent annual growth rate for the first nine months of 2012 remains slightly behind last year's 1.8 percent growth. And both are below 2010's growth of 2.4 percent.

The economy contracted at a 5.3 percent annual rate in the first three months of 2009, just as Obama took office during the worst downturn since the Great Depression. Obama says his policies stabilized the economy later that year and argues that the stimulus package and auto bailout helped it grow in 2010.

The White House points to an economy that's expanded for 13 straight quarters. Yet this year's third-quarter growth is slightly below the 2.2 percent average pace since the recession ended in June 2009.

The economy's health is most closely tied to consumers, whose spending drives 70 percent of economic activity.

The latest report showed some progress.

Consumer spending rose at an annual rate of 2 percent in the July-September quarter, up from 1.5 percent in the previous quarter. And a survey by the University of Michigan released Friday found consumer confidence increased to its highest level in five years this month. That suggests spending may keep growing.

Americans spent more on cars, adding nearly 0.2 percentage point to growth. Housing added to growth for the sixth straight quarter.

"Those are the sectors that reflect growing consumer confidence and greater lending," said Joseph Carson, U.S. economist for AllianceBernstein, an asset management firm.

Still, more jobs and better pay are needed to sustain that growth, he added. After-tax, inflation-adjusted income rose at only a 0.8 percent annual rate in the third quarter. That was down from a 3.1 percent rate in the previous quarter.

Income includes not only wages but also dividends, rental income and government or workplace benefits, among other items.

With businesses nervous about the economic outlook, hiring isn't likely to pick up soon.

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