US economic growth was likely stronger in Q3

Associated Press Published: November 9, 2012
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The current October-December quarter began with promising signs on jobs and consumer spending.

Employers added 171,000 jobs in October, and hiring was stronger in August and September than first thought, the government said last week. And a separate report Friday showed that the University of Michigan's consumer sentiment index rose in early November to the highest level since July 2007.

Still, Herzon predicts growth is weakening in the October-December quarter to an annual rate of just 1.1 percent. That's because he expects businesses have slowed their pace of restocking since the third quarter. And the government likely spent less on defense after a sharp rise in the third quarter.

"We don't think the fourth quarter will be as robust," he said.

Many economists expect growth to stay at 2 percent for the entire year, little changed from last year's lackluster 1.8 percent growth rate.

But Herzon said the economy could expand at a better pace next year. He is forecasting growth of 2.9 percent in 2013. He's optimistic that Congress and the administration will reach a budget agreement to keep big tax increases and spending cuts from taking effect beginning in January.

Those tax increases and spending cuts are collectively known as the "fiscal cliff."

"In our forecast, conditions in Europe gradually improve, and the fiscal cliff is largely avoided," Herzon said. "With uncertainty over the fiscal cliff resolved, business investment spending begins to improve."