Ahead of the Bell: US Economy-GDP

November 29, 2012

WASHINGTON (AP) — The U.S. economy likely grew faster than initially thought from July through September, but it's unclear whether the pace can be sustained this quarter.

Economists expect the government will revise its estimate to say the economy grew at a 2.8 percent annual rate in the July-September quarter, according to a survey by FactSet. That would be significantly better than the 2 percent rate initially estimated last month.

The Commerce Department will release its second estimate for the gross domestic product at 8:30 a.m. EST Wednesday. GDP measures the nation's total output of goods and services — from restaurant meals and haircuts to airplanes, appliances and highways.

Expectations for the third quarter are higher after two solid September reports published after the government's first estimate was released. One showed the nation's trade gap narrowed substantially because of an increase in exports; the other reported that companies boosted their stockpiles after seeing stronger sales.

Still, most economists say growth has slowed since then. They expect the rate to drop back below 2 percent in the October-December quarter. That's generally considered too slow to rapidly lower the unemployment rate.

Economists point to two reasons they expect growth to weaken.

Superstorm Sandy halted business activity along the East Coast in late October and November. And many businesses and consumers could end up scaling back on spending in the final weeks of the year, if lawmakers and the Obama administration can't reach a budget deal to avoid the "fiscal cliff." That's the name for sharp tax increases and spending cuts that would occur in January without a deal.

So far, many reports suggest economic activity picked up early in the fourth quarter. And if Congress and Obama reach agreement and avoid the fiscal cliff, economic growth could accelerate next year, many economists say.

A Federal Reserve survey released Tuesday showed improved consumer spending and steady home sales helped lift growth from October through early November in most parts of the United States. The one exception was the Northeast, where the storm led to widespread disruptions.

The Labor Department said employers added 171,000 jobs last month and hiring in September and August was stronger than previously thought.

Rising home values, more hiring and lower gas prices pushed consumer confidence in November to the highest level in nearly five years, according to the Conference Board.

A better mood among consumers appears to have encouraged businesses to invest more in October after pulling back over the summer.

There are already signs that consumer optimism is leading to more spending. A record number of Americans visited stores and shopping websites over the four-day Thanksgiving weekend, according to a survey by the National Retail Federation.