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Ear to the Ground

Third-Quarter Economic Growth Beats Expectations

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Posted on Oct 26, 2012
Robert S. Donovan (CC BY 2.0)

The good news for President Obama and many Americans is this that the economy grew by a 2 percent annual rate in the third quarter. The bad news is that that’s not enough to calm private sector fears that economic conditions will worsen. Businesses appear to be limiting spending in anticipation of the “fiscal cliff,” when the Bush-era tax cuts are due to expire and massive spending cuts will occur if no budget compromise is found.

The economic numbers released Friday by the Commerce Department are the last before November’s election.

—Posted by Alexander Reed Kelly.

The Guardian:

The rise was higher than the 1.8% economists surveyed by Dow Jones Newswires had expected. The economy has now grown for 13 consecutive quarters. But at 2% growth remains extremely weak and the latest report contained worrying signs that business is cutting back, fearing a worsening of economic conditions.

Consumer spending accounted for most of the rise in GDP. Personal consumption expenditures rose 2% in the quarter, up from 1.5% in the previous quarter. Purchases of long-lasting goods soared 8.5%. The news came as the Thomson Reuters/University of Michigan consumer confidence index rose to its highest level since September 2007.

But while consumers are spending again, business confidence seems to be weakening. Non-residential fixed investment, which includes business spending on structures and equipment, fell 1.3% during the third quarter, compared with a 3.6% gain in the prior period. The pullback suggests businesses are reigning in spending ahead of the election and the uncertainty over the so-called “fiscal cliff” – the expiration of Bush-era tax cuts and imposition of massive spending cuts scheduled for the end of the year unless political compromise is found.

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