US economy likely grew a little faster over summer

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON (AP) - The U.S. economy likely grew at a faster pace over the summer after a sluggish first half of the year.

Consumers spent more on retail goods. Businesses kept investing in equipment. And U.S. auto production rebounded after supply-chain disruptions caused by the Japan crisis finally started to ease.

For those reasons, economists are forecasting annual growth of 2.4 percent for the July-September quarter, according to a survey by FactSet.

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The Commerce Department will release its first estimate for third-quarter growth at 8:30 a.m. Thursday.

The report measures gross domestic product, or GDP, which is the country's total output of goods and services. It covers everything from bicycles to battleships, as well as services such as haircuts and doctor's visits.

In August, many thought the economy was headed for another recession after the government said GDP fell to 0.9 percent for first six months of the year. High gas prices, the growing debt crisis in Europe and wild fluctuations in the stock market also contributed to those fears, which have receded in recent weeks after reports showed improvements in hiring and consumer spending.

Third-quarter growth of 2.4 percent would further ease those worries. Still, that wouldn't be nearly enough to significantly lower the unemployment rate, which has been near 9 percent for the past two years.

Economists expect growth in the range of 2.5 percent to 3 percent in the October-December quarter and for all of next year - just enough to keep the unemployment rate from rising.

For the 14 million people who are out of work and want jobs, that's discouraging news. And it's an ominous sign for President Barack Obama, who will be facing voters next fall.

"We are looking at very disappointing growth over the next year. It will be far short of what is needed to get businesses to hire more aggressively," said Mark Zandi, chief economist at Moody's Analytics.

There have been some encouraging signs.

A measure of business investment plans rose in September for the second straight month and by the most in six months, according to a government report Wednesday on orders for longer-lasting manufactured goods.

And consumers stepped up their spending on retail goods in both July and September. The main reason for the September gain was more people bought new cars, a purchase people typically make when they are confident in their finances.

Paul Ashworth, chief U.S. economist at Capital Economics, said he believed the July-September growth would be closer to 3.2 percent, in part because of the strength in business investment. But he said activity in the October-December period would slip back to below 2 percent, reflecting a global slowdown caused in part by the debt crisis in Europe that will dampen U.S. exports.

Economists warned that even their modest assessment of growth of around 2.7 percent for next year will fall short if the European debt situation does not get resolved. And the outlook could dim further if U.S. lawmakers allow a Social Security tax cut and extended unemployment benefits to expire at the end of this year.

"How the economy performs next year will depend heavily on what policymakers here and in Europe do in coming weeks," Zandi said.

(Copyright 2011 by The Associated Press. All Rights Reserved.)