Growth Probably Slowed Prior to U.S. Government Shutdown

Photographer: Patrick T. Fallon/Bloomberg

A woman browses used children's clothing for sale during the LA Kids Consignment Sale in Burbank, California. Consumer spending, the biggest part of the economy, was probably the weakest since 2011. Close

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Photographer: Patrick T. Fallon/Bloomberg

A woman browses used children's clothing for sale during the LA Kids Consignment Sale in Burbank, California. Consumer spending, the biggest part of the economy, was probably the weakest since 2011.

The economy probably slowed in the third quarter and employers hired fewer workers in October, indicating the U.S. expansion was losing momentum even before the partial government shutdown, economists project reports to show this week.

Gross domestic product grew at a 2 percent annualized rate after a 2.5 percent pace from April through June, according to the median forecast of 69 economists surveyed by Bloomberg before Commerce Department figures due Nov. 7. Consumer spending, the biggest part of the economy, was probably the weakest since 2011. Payrolls rose by 125,000 workers after a 148,000 gain in September, Labor Department figures may show.

A drop in government output and restrained business and consumer purchases due to the 16-day shutdown last month have prompted economists to trim fourth-quarter growth forecasts, a separate Bloomberg survey showed. Tepid hiring and a jobless rate that’s projected to have climbed in October help explain why Federal Reserve policy makers are pressing on with stimulus.

“The economy still has growth, but it’s just very moderate,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Job gains and wage gains remain weak. That’s a challenge for consumer spending.”

The GDP report may show consumer spending, which accounts for about 70 percent of the economy, grew at a 1.6 percent annualized rate, the smallest gain since the second quarter of 2011, according to the Bloomberg survey median. Purchases advanced 1.8 percent from April through June.

Jobless Rate

The jobs report may show the unemployment rate, derived from a separate Labor Department survey of households than the payrolls tally, rose to 7.3 percent, according to the Bloomberg survey. It was 7.2 percent in September, the lowest since November 2008. Private employment, which excludes government agencies, climbed 130,000 after rising 126,000, economists projected ahead of the Nov. 8 data.

Companies that announced job cuts last month include Coldwater Creek Inc. (CWTR), a retailer of women’s clothing, which plans to cut 20 percent of its workforce. Strayer Education Inc., a for-profit college operator, also said it expects a 20 percent reduction in headcount as it closes about 20 locations.

Motor vehicle purchases have been a bright spot in the expansion as Americans take advantage of cheaper borrowing costs to replace older models.

Auto Sales

General Motors Co. (GM) and Ford Motor Co. (F) reported U.S. sales gains for October as demand recovered following the shutdown. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace, according to data from Ward’s Automotive Group.

“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.

Other data this week include the Institute for Supply Management Inc.’s services index, due Nov. 5. The report may show its measure of industries that cover about 90 percent of the economy cooled to 54 in October, the weakest in four months, from 54.4, according to the Bloomberg survey median. Readings above 50 signal expansion.

Growth this quarter will be less than economists projected at the start of the budget impasse that began Oct. 1. GDP will expand at a 2 percent annualized rate in the final three months of the year, according to the median projection in a Bloomberg survey on Oct. 31, down from a 2.4 percent forecast in an Oct. 4-9 survey.

Government Spending

The figure will reflect in a decline in government output, estimated by the number of hours put in by federal workers, as well as cutbacks at contractors, economists said.

The Fed at its meeting last week decided to continue $85 billion in monthly asset purchases as part of its efforts to spur growth. The central bank left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.

“The recovery in the housing sector slowed somewhat in recent months,” the central bank said in the Oct. 30 release. “Fiscal policy is restraining economic growth.”

                       Bloomberg Survey

===============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
===============================================================
Factory Orders MOM%       11/4     Sept.     -2.4%      1.8%
LEI  MOM%                 11/6     Sept.      0.7%      0.6%
GDP Annual QOQ%           11/7      3Q A      2.5%      2.0%
Personal Consump. QOQ%    11/7      3Q A      1.8%      1.6%
Initial Claims ,000’s     11/7     2-Nov      340       335
Nonfarm Payrolls ,000’s   11/8      Oct.      148       125
Private Payrolls ,000’s   11/8      Oct.      126       130
Unemploy Rate %           11/8      Oct.      7.2%      7.3%
Hourly Earnings MOM%      11/8      Oct.      0.1%      0.2%
Hourly Earnings YOY%      11/8      Oct.      2.1%      2.4%
Avg Weekly Hours          11/8      Oct.      34.5      34.5
Pers Inc MOM%             11/8     Sept.      0.4%      0.3%
Pers Spend MOM%           11/8     Sept.      0.3%      0.2%
U of Mich Conf. Index     11/8     Nov. P     73.2      74.5
===============================================================

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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