U.S. Economy Expands In 3Q; Spending Slows

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November 7, 2013 by   Leave a Comment

The U.S. economy grew faster than expected over the summer, according to government data released Thursday morning, but analysts cautioned that the strong showing could be deceptive.

As reported by the Washington Post, the Commerce Department reported the nation’s gross domestic product increased at a 2.8% annual rate during the third quarter. That is faster than the pace of growth during the spring and significantly higher than the 2% rate economists had predicted.

But much of that gain was driven by a buildup in inventory as businesses watched sales slacken. Consumer spending tapered off during the third quarter as many households faced uncertainty heading into the government shutdown. In addition, the U.S. trade deficit narrowed during the summer, taking a smaller bite out of GDP.

The data do not reflect the federal government shutdown last month, which is expected to shave about half a percentage point from economic growth during the fourth quarter. A clearer picture of the shutdown’s impact should emerge Friday when the government’s monthly tally of employment is released. Alan MacEachin, corporate economist at Navy Federal Credit Union, said he is lowering his forecast for job creation to just 110,000 for October based on the GDP report.

“It is deceptively weak,” he said of the economy. “You drill down below the surface, and you can see what’s going on.”

Most worrisome was the slower growth in consumer spending, which fuels roughly two-thirds of the economy. Consumer confidence nose-dived during the shutdown, although it has since picked up. But that volatility still threatens to dampen shoppers’ spirits during the critical holiday season.

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