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Economy grows at slightly faster pace in Q3

Economy grows at slightly faster pace in Q3

October 29th, 2010 by By JEANNINE AVERSA, AP Economics Writer in News

WASHINGTON (AP) - The economy grew at a slightly faster pace over the summer as Americans spent a little more freely.

The Commerce Department said Friday that the economy expanded at a 2 percent annual rate in the July-September quarter. It marked an improvement from the feeble 1.7 percent growth in the April-June quarter.

Still, the economy isn't growing at a strong enough pace to make a noticeable dent in high unemployment and nearly 15 million Americans are out of work.

Consumers helped boost last quarter's economic growth with 2.6 percent growth in spending. That was better than the second quarter's 2.2 percent growth rate and marked the biggest quarterly increase since a 4.1 percent gain at the end of 2006 before the recession hit.

A stock-market rebound made people feel better about spending. Bargains, on everything from cars to home furnishings, also drew them out. Consumer spending accounts for roughly 70 percent of national economic activity, and thus plays a major role in determining the vigor of the economic rebound.

But to have any impact on the 9.6 percent unemployment rate, consumers need to spend even more and the economy would need to rack up growth of 5 percent for a full year.

The government's latest snapshot of the country's economic health comes just days before Americans go to the polls to elect a new Congress. Angry voters could cost Democrats control of the House, and maybe the Senate. The fragile economy means Americans with jobs are seeing scant wage gains and those without are facing fierce competition for the few openings that become available. Home foreclosures have soared.

To strengthen the economy, the Fed is all but certain to launch a new aid program next week. It is likely to start buying government bonds again in a bid to make loans cheaper and spur people to spend more. Doing so would help economic growth.

Businesses also played a role in the economy's slightly better performance during the July-September quarter.

They boosted spending on equipment and software at a 12 percent annualized rate, although that was roughly half the pace seen in the prior quarter. And companies increased spending on commercial construction projects, such as office buildings and factories, for the first time in more than two years. Such spending grew at a 3.9 percent pace in the July-September quarter.

However, companies slashed spending on housing projects last quarter at an annualized pace of nearly 30 percent. That followed a big burst of spending in the April-June quarter, which was supported by the government's now-expired homebuyer tax credit.

The housing market, which led the country into recession, remains a weight on the economy.

The nation's trade deficit also restrained growth last quarter, although not by as much as in the prior three months.

Looking ahead to the current quarter, economic growth isn't expected to be much better. A new AP Economy survey estimates a 2.4 percent pace.

If that's that case, the economy will end 2010 on weaker footing than it started. In the January-March quarter, the economy expanded at a 3.7 percent pace.