The economy in the U.S. expanded more than forecast in the third quarter, paced by a pickup in consumer spending, a rebound in government outlays and gains in residential construction.
Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2 percent annual rate after climbing 1.3 percent in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 1.8 percent gain.
A housing rebound is helping mend Americans’ finances and confidence, indicating the pickup in demand for expensive items such as automobiles can be sustained. The data is likely to play a role in the upcoming election, allowing President Barack Obama to say the economy is heading in the right direction, while challenger Mitt Romney may argue growth is not fast enough.
“The economy is expanding, but expanding slowly,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “We have moderate growth in consumer spending, and one of the previously disastrous areas, housing, is picking up.”
The rate of growth would have been stronger if not for the drought that affected crops in the Midwest. A drop in farm inventories subtracted 0.4 percentage point from third-quarter GDP after cutting 0.2 point in the prior period, the report showed.
Economists’ estimates for GDP ranged from 0.9 percent to 3.1 percent. The GDP estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.
Consumer purchases, the biggest part of the economy, grew at a 2 percent annual rate, up from a 1.5 percent second-quarter gain and compared with a 2.1 percent median forecast in the Bloomberg survey. Purchases added 1.4 percentage point to growth.
Retail sales in September and August had the best back-to-back showing since late 2010 as shoppers snapped up goods from cars to Apple Inc.’s iPhones. Target Corp., the second-biggest U.S. discounter, was among chains topping analysts’ estimates for same-store sales last month.
Cars and light trucks sold at a 14.9 million annual pace in September, the strongest since March 2008, according to Ward’s Automotive Group. Chrysler Group LLC and General Motors Co. reported gains. Record-low mortgage rates are stoking demand for housing, another area of the economy that’s improving. Firming home prices and a drop in joblessness may further boost Americans’ confidence and spending.
At the same time, consumers’ purchasing power eased, with disposable income adjusted for inflation rising at a 0.8 percent annual rate from July through September, the least since the end of 2011, after a 3.1 percent gain in the second quarter, today’s report showed. The saving rate fell to 3.7 percent from 4 percent.
Spending by the federal government also rebounded, led by a jump in defense outlays. It grew at a 9.6 percent rate, the most since the second quarter of 2010. Total public expenditures climbed at a 3.7 percent pace the most in three years.
Residential construction increased at a 14.4 percent rate, up from an 8.5 percent gain in the prior period.
One area of mounting concern is business investment and manufacturing.
Corporate spending on equipment and software was unchanged, the weakest reading in three years, today’s report showed.
Data yesterday showed orders for non-defense capital goods excluding aircraft, a proxy for future corporate spending on items like computers, engines and communications gear, stagnated in September and shipments fell.
Honeywell International Inc., a maker of turbochargers and cockpit controls, cut its annual sales estimate on weaker demand for aerospace parts and falling auto production in Europe.
“Turning to 2013, the clarity on the macro side is still murky,” Honeywell Chief Executive Officer Dave Cote said on an Oct. 19 conference call with analysts. “There’s nothing out there to suggest anything but continued conservative planning at best.”
Caterpillar Inc., the world’s largest maker of construction and mining equipment, this week projected sales growth for 2013 that would be slower than the prior three years. Production has been trimmed, with temporary shutdowns and dismissals to work through excess stockpiles, the Peoria, Illinois-based company said.
Others who lowered profit projections include 3M Co., the manufacturer of products ranging from Scotch tape to dental braces, and DuPont Co., the most valuable U.S. chemical maker, which also announced 1,500 job cuts.
In addition to slowing growth from Europe to Asia that will limit exports, the U.S. is approaching more than $600 billion in tax increases and spending cuts set to take effect early next year unless Congress acts.
The trade deficit expanded as exports dropped, subtracting 0.2 percentage point from third-quarter growth, today’s report showed.
Today’s report will be the last reading on the state of the economy before Americans go to polls next month. Employment and growth are central themes in the campaigns ahead of the Nov. 6 elections.
The jobs data for October are scheduled to be released by the Labor Department on Nov. 2. Payrolls rose 114,000 in September after climbing 142,000 in August, while the unemployment rate dropped to a three-year low of 7.8 percent from 8.1 percent.
Federal Reserve policy makers highlighted the advance in consumer spending and slowdown in business investment in the Oct. 24 statement after their meeting. They pledged to keep buying $40 billion in mortgage-backed securities a month in a bid to spur the three-year expansion and reduce joblessness.
“Economic activity has continued to expand at a moderate pace,” the Fed said. “Growth in employment has been slow, and the unemployment rate remains elevated.”