Summer’s GDP tops forecast

Restocking leads quarter’s 2.8%; consumer spending slows

WASHINGTON - The economy in the U.S. expanded in the third quarter at a faster pace than forecast, led by the biggest increase in inventories in more than a year even as household purchases and business investment slowed.

Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent gain the prior three months, the Commerce Department said Thursday. The median forecast of economists surveyed by Bloomberg called for a 2.0 percent advance. Consumer spending climbed 1.5 percent, the smallest increase since 2011.

The U.S. is seeing “plowhorse economic growth,” said Robert Stein, deputy chief economist at First Trust Portfolios LP in Wheaton, Ill. “It’s not going to win the derby, it’s not going to keel over and die,” he said, predicting an acceleration in growth next year.

Home construction also rose during the quarter, and state and local governments spent at their fastest pace in four years. But businesses spent less on equipment,federal spending fell and consumers spent at a slower pace. All are cautionary signs for the final three months of the year.

Overall, growth increased in the third quarter to the fastest pace in a year, the Commerce Department said.

Analysts noted that much of the unforeseen strength came from a buildup in com-pany inventories. That suggests that businesses overestimated consumer demand.

Restocking contributed 0.8 percentage point to growth - double its contribution in the second quarter.

Sal Guatieri, an economist at BMO Capital Markets, predicts that companies will cut back on restocking in the October-December quarter. He thinks less stockpiling, along with the effects of the recent government shutdown, will slow growth to an annual rate below 2 percent this quarter.

Consumers stepped up spending on goods last quarter, but the pace of their increase weakened to a 1.5 percent annual rate from a 1.8 percent rate in the previous quarter. Spending on services was essentially flat, partly because of a cooler summer that lowered utility spending.

Spending by consumers is critical to growth because it drives roughly 70 percent of economic activity. Higher taxes this year and slow wage growth have weighed on consumers since the start of the year.

Exports rose at a 4.5 percent rate in the third quarter, helped by stronger economies overseas. Still, businesses cut back on investment in equipment by the most in a year.

Overall government activity grew at a slight 0.2 percent rate, reflecting a 1.5 percent rise in state and local government spending - the best showing since the spring of 2009. Federal government spending dropped again, falling at a 1.7 percent annual rate.

Analysts say the shutdown could cut more than half a percentage point from annual growth in the October-December quarter. The shutdown cost the U.S. economy an estimated $24 billion, according to Beth Ann Bovino, an economist at Standard & Poor’s.

One bright spot for the economy this year has been motor-vehicle sales as Americans take advantage of cheaper borrowing costs to replace older models. Purchases averaged 15.7 million at an annual rate in the third quarter, up from 15.5 million in the prior three months, according to Ward’s Automotive Group data.

OCTOBER AUTO SALES

Demand held up at the start of the fourth quarter for General Motors Co. and FordMotor Co. as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace.

“What we saw early in the month was some softness, but we were very encouraged when we saw the retail demand in the industry bounce back,” John Felice, Ford’s vice president of U.S. marketing, sales and service, said on a conference call.

The GDP estimate is the first of three for the third quarter, with the other releases scheduled for December when more information becomes available.

Information for this article was contributed by Martin Crutsinger of The Associated Press and Shobhana Chandra and Kristy Scheuble of Bloomberg News.

Business, Pages 31 on 11/08/2013

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