U.S. economic pace picks up in quarter

2.7% rate is faster than estimated

— The U.S. economy grew at a 2.7 percent annual rate from July through September, much faster than first estimated.

The growth in the third quarter was significantly better than the 2 percent rate announced a month ago, the Commerce Department said Thursday. And it was more than twice the 1.3 percent rate reported for the April-June quarter.

The economy’s strength is expected to fade in the final months of the year because of Hurricane Sandy and concern about the potential for tax increases and government spending cuts.

William Dudley, president of the Federal Reserve Bank of New York, said Thurs- day that Sandy will probably reduce the nation’s overall economic output, or gross domestic product, by 0.25 to 0.50 of a percentage point in the last three months of the year.

“Normal economic activity in the final days of October and the first few days of November was severely disrupted,” Dudley said in a speech at Pace University in New York City.

The main reason for the upward revision to the gross domestic product was businesses restocked at a faster pace than previously estimated. That offset weaker consumer spending growth.

Gross domestic product measures the nation’s total output of goods and services — from restaurant meals and haircuts to airplanes, appliances and highways.

Most economists say economic growth is slowing to below 2 percent in the current October-December quarter. That’s generally considered too weak to rapidly lower the unemployment rate.

Paul Ashworth, chief U.S. economist at Capital Economics, said companies are likely restocking more slowly now. Businesses typically cut back on restocking when they think consumers will spend less. Consumer spending drives roughly 70 percent of economic activity.

Economists cite two reasons for the anticipated weakness in consumer and business spending.

Hurricane Sandy halted business activity along the East Coast in late October and November. And spending may weaken in the final weeks of the year, if lawmakers and President Barack Obama fail to reach a deal to avoid the “fiscal cliff.” That’s the name for tax increases and spending cuts that would occur in January without a deal.

Companies are “likely thinning inventories just in case Congress fails to do its job, which is always a possibility,” said Joel Naroff, chief economist at Naroff Economic Advisors.

A separate report Thursday showed the negative effects of Sandy are starting to fade. The number of Americans seeking unemployment benefits fell 23,000 to a seasonally adjusted 393,000 last week, the Labor Department said.

It was the second-straight drop after the storm drove applications to 451,000 three weeks ago.

People can claim unemployment benefits if their workplaces are forced to close and they aren’t paid.

The four-week average of applications, a less volatile measure, rose to 405,250 last week.

That figure has been elevated by the storm.

Consumers and businesses appeared to be more cautious over the summer, according to the Commerce Department’s GDP report.

Consumer spending grew at a weaker 1.4 percent rate in the third quarter, down from the 2 percent rate estimated a month ago and nearly in line with the 1.5 percent rate in the second quarter.

Business spending on equipment and software fell at an annual rate of 2.7 percent in the third quarter, the first decline since the depths of the recession in April-June 2009.

The report showed continued strength in homebuilding, which rose at an annual rate of 14.2 percent. And government spending expanded at an annual rate of 3.5 percent, marking its first positive contribution to overall economic growth in two years. The increase was driven by a big jump in defense spending.

Americans signed more contracts in October to purchase previously owned homes, another sign the recovery in the housing market is being sustained.

The index of pending home resales climbed 5.2 percent, exceeding the highest estimate in a Bloomberg survey of economists, to 104.8 after a revised 0.4 percent gain in September, figures from the National Association of Realtors showed Thursday in Washington.

The median forecast in the Bloomberg survey called for a 1 percent gain.

“As folks start to feel a little more comfortable about their home price, they’re going to put it on the market and you’re going to start to see this trend continue” of higher sales, Anika Khan, a Charlotte, N.C.-based senior economist at Wells Fargo & Co. “We still see the overall residential market continuing to add to growth in the coming quarters.”

Information for this article was contributed by Martin Crutsinger and Christopher S. Rugaber of The Associated Press; by Michelle Jamrisko and Chris Middleton of Bloomberg News; and by Jim Puzzanghera of the Los Angeles Times.

Front Section, Pages 1 on 11/30/2012

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