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Growth Probably Sped Up on Spending Gain: U.S. Economy Preview

The economy in the U.S. probably grew at a faster pace in the third quarter, reflecting a pickup in consumer spending that bodes well for the recovery’s staying power, economists projected a report this week will show.

Gross domestic product rose at a 2 percent annual pace, up from a 1.7 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before an Oct. 29 Commerce Department report. Other data may show business investment remains a mainstay of the economic rebound, while housing is mired in a slump.

The pace of growth would still not be strong enough to give the 14.8 million unemployed Americans hope of finding work soon, one reason why Federal Reserve policy makers may be about to pump more money into the economy. Wal-Mart Stores Inc. and Target Corp. are among retailers likely to gain as discounts lure budget-conscious shoppers during the year-end holidays.

“There’s no question about the sustainability of the recovery now,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “But unless we grow faster, we don’t have a shot at bringing down unemployment significantly. Improvement in consumer spending is a sign the holiday season will be better than in the past couple of years.”

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

Spending Climbs

Consumer spending, which accounts for about 70 percent of the economy, increased at a 2.4 percent annual rate from July through September, the best showing of the recovery that began in June 2009, economists project.

The National Retail Federation has forecast November- December sales will rise by 2.3 percent from a year ago, making it the best holiday season in four years. Wal-Mart, the world’s largest retailer, Target, Amazon.com Inc. and EBay Inc. are among merchants that will benefit as shoppers look for bargains, according to results of a survey issued this month by Consumer Edge Research in Stamford, Connecticut.

The Standard & Poor’s 500 index has gained 11 percent since Aug. 27, when Fed Chairman Ben S. Bernanke said the central bank “will do all that it can” to sustain the economy’s rebound. The measure rose 0.2 percent to 1,183.08 at the 4 p.m. close in New York on Oct. 22.

About 85 percent of companies in the S&P 500 gauge have exceeded analysts’ per-share profit estimates so far in third- quarter reports. Sales are rising at companies from Boeing Co. to chipmaker Intel Corp. and railroad CSX Corp. Faster overseas growth is also boosting earnings.

Aircraft Sales

Boeing, the world’s largest aerospace company, reported a third-quarter profit due to higher jetliner deliveries and raised its full-year forecast. The jump in orders is prompting the Chicago-based company to make plans to boost production.

The orders are coming amid a “slow, steady kind of recovery,” Chief Executive Officer Jim McNerney said on an Oct. 20 conference call. Most of the demand is from overseas.

The Commerce Department may report on Oct. 27 that orders for goods meant to last at least three years climbed 2 percent in September, the most in five months, according to the Bloomberg survey median. The gain signals business investment in new equipment continues to support the recovery.

While capital expenditures are climbing, manufacturing gains are cooling as the pace of inventory rebuilding eases compared with the surge that began in late 2009.

Housing Woes

Housing continues to struggle as foreclosures mount and unemployment near 10 percent limits demand and hurts property values. Sales of existing homes, due tomorrow from the National Association of Realtors, rose to a 4.3 million annual rate last month, according to the Bloomberg survey median. The readings over the past three months would be the lowest since comparable records began in 1999.

The Commerce Department may report on Oct. 27 that new-home purchases increased last month to a 300,000 annual rate, hovering close to the record-low 282,000 reached in May, economists predicted.

Home prices in 20 cities for the 12 months through August climbed at a slower pace, according to the Bloomberg survey. The S&P/Case-Shiller index is due Oct. 26.

Consumer confidence reports may show little change this month as the lack of jobs unnerves Americans. The Thomson Reuters/University of Michigan’s sentiment index, due Oct. 29, is projected to drop to a three-month low, while the Conference Board’s gauge on Oct. 26 may climb from a one-year low.

                        Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
Exist Homes Mlns         10/25     Sept.      4.13      4.30
Exist Homes MOM%         10/25     Sept.      7.6%      4.1%
Case Shiller Monthly YOY 10/26      Aug.      3.2%      2.2%
Consumer Conf Index      10/26      Oct.      48.5      49.5
Durables Orders MOM%     10/27     Sept.     -1.5%      2.0%
Durables Ex-Trans MOM%   10/27     Sept.      1.7%      0.5%
New Home Sales ,000’s    10/27     Sept.      288       300
New Home Sales MOM%      10/27     Sept.      0.0%      4.2%
GDP Annual QOQ%          10/29      3Q A      1.7%      2.0%
Personal Consump. QOQ%   10/29      3Q A      2.2%      2.4%
U of Mich Conf. Index    10/29     Oct. F     67.9      68.0
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To contact the reporter on this story: Shobhana Chandra in Washington at Schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

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