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US economy likely grew slowly last quarter

MARTIN CRUTSINGER, AP Economics Writer
Friday, 26 Oct 2012 | 12:02 AM ET

WASHINGTON -- The government's snapshot Friday of the U.S. economy's growth will be its last before Americans choose a president in 11 days.

It probably won't sway many undecided voters.

The first of three estimates of growth for the July-September quarter will likely sketch a picture that's been familiar all year: The economy is growing at a tepid rate, slowed by high unemployment, corporate anxiety over an unresolved budget crisis and a global economic slowdown.

Economists' consensus forecast is that the government will estimate that the economy grew at an annual rate of 1.8 percent last quarter. That would exceed the 1.3 percent annual rate in the April-June quarter. But it would be too slight to signal robust job creation, which is what the economy needs most.

And it would give Mitt Romney's team evidence to argue that the economy is growing at an unacceptably subpar pace.

"We are stuck in this half-speed growth mode," said David Wyss, an economics professor at Brown University.

The government's report covers gross domestic product. GDP measures the nation's total output of goods and services _ from restaurant meals and haircuts to airplanes, appliances and highways.

Economists think GDP growth in the final three months of 2012 could resemble the preceding three quarters, with the economy expanding at an annual rate of around 1.8 percent. If that estimate proves accurate, growth for the entire year would equal 1.7 percent, even slower than the 1.8 percent growth for 2011.

Since the recovery from the Great Recession began in June 2009, the U.S. economy has grown at the slowest rate of any recovery in the post-World War II period. And economists think growth will remain sluggish at least through the first half of 2013. Some analysts believe the economy will start to pick up in the second half of next year.

By then, they think the tax and spending confrontations that have brought gridlock to Washington should be resolved. Employers that say they won't hire or expand much until federal tax and regulatory uncertainties are resolved could start to spend more.

Some economists say the Federal Reserve's continued efforts to boost the economy by lowering long-term interest rates will help generate more borrowing and spending by consumers and businesses.

"By the time we get into the second half of 2013, the Fed's efforts to kick the economy into overdrive should be having an impact, and there should be some sort of resolution of Washington's budget issues," said Brian Bethune, an economics professor at Gordon College in Massachusetts.

Still, a panel of 40 top forecasters with the National Association for Business Economics isn't expecting significant improvement over the next two years. Last week, they predicted GDP growth of just 2.2 percent in 2013.

One problem is that companies are holding off on purchases of computers, industrial equipment and other long-lasting manufactured goods. Corporate spending has been lackluster for four straight months.

Corporate investment helped the U.S. economy emerge from the Great Recession. But businesses have grown more cautious since spring, in part because customer demand has remained modest and exports have declined as the global economy has slowed.

Many companies worry that their overseas sales could dampen further if recession spreads throughout Europe and growth slows further in China, India and other developing countries. Businesses also fear the tax increases and government spending cuts that will kick in next year if Congress doesn't reach a budget deal.

Business investment has slumped even as consumers have become more hopeful about the economy. Consumer confidence in October reached a five-year high. Retail spending surged in September, mainly because Americans bought more cars, iPhones and appliances. And home sales are up this year, contributing to a nascent housing recovery.

Consumer spending drives nearly 70 percent of economic activity.

Housing is rebounding after a six-year slump. New-home sales jumped last month to the highest annual pace in 2 1/2 years. And in September, builders broke ground on homes and apartments at the fastest pace in more than four years.

This year will likely be the first time in six years that housing has contributed to economic growth.