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Economy in U.S. Probably Cooled in Third Quarter Before Shutdown

Photographer: Luke Sharrett/Bloomberg

Demand held up at the start of the fourth quarter for General Motors Co. and Ford Motor Co. as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace. Close

Demand held up at the start of the fourth quarter for General Motors Co. and Ford Motor... Read More

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Photographer: Luke Sharrett/Bloomberg

Demand held up at the start of the fourth quarter for General Motors Co. and Ford Motor Co. as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace.

The economy slowed in the third quarter, indicating the U.S. expansion lost momentum prior to the partial shutdown of the federal government, economists project a report will show today.

Gross domestic product, the value of all goods and services produced, rose at a 2 percent annualized rate after expanding at a 2.5 percent pace in the previous three months, according to the median forecast of 87 economists surveyed by Bloomberg. Consumer spending, the biggest part of the economy, was probably the weakest in more than two years.

The projected pace of growth matches the average since the end of 2010, highlighting an economy that’s struggling to accelerate and helping explain why Federal Reserve officials are pressing on with stimulus. The 16-day government shutdown that restrained corporate and consumer spending prompted economists to trim growth forecasts for the current quarter.

“The economy was a bit slower than in the prior quarter, though generally quite similar,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “Progress remains moderate but disappointing. The shutdown knocked some of the growth out of the fourth quarter.”

Economists at High Frequency Economics Ltd. said the third-quarter GDP figures will also reflect a smaller gain in homebuilding, due in part to a pickup in mortgage rates, and a narrower trade gap than in the previous three months.

Photographer: Patrick T. Fallon/Bloomberg

Consumer spending, the biggest part of the economy, was probably the weakest in more than two years. Close

Consumer spending, the biggest part of the economy, was probably the weakest in more than two years.

Close
Open
Photographer: Patrick T. Fallon/Bloomberg

Consumer spending, the biggest part of the economy, was probably the weakest in more than two years.

The Commerce Department will release the GDP figures at 8:30 a.m. in Washington. Economists’ estimates ranged from 1.2 percent to 3 percent. The data, initially slated for release on Oct. 30, were delayed by the government shutdown.

Jobless Claims

Also at 8:30 a.m., a report from the Labor Department may show the number of Americans filing applications for jobless benefits fell by 5,000 to 335,000 in the week ended Nov. 2, according to the median projection in the Bloomberg survey.

The GDP data may show household spending, which accounts for almost 70 percent of the economy, grew at a 1.6 percent annualized rate, according to the Bloomberg survey median. That would be the smallest gain since the second quarter of 2011 and follows a 1.8 percent advance from April through June.

One bright spot for the economy this year has been motor vehicle sales as Americans take advantage of cheaper borrowing costs to replace older models. Purchases averaged 15.7 million at an annual rate in the third quarter, up from 15.5 million in the prior three months, according to Ward’s Automotive Group data.

Demand held up at the start of the fourth quarter for General Motors Co. and Ford Motor Co. as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace.

Auto Sales

“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.

While Americans are benefiting from rising stock prices and home values, a pickup in spending depends on bigger gains in employment and wages.

Payroll have grown at a slower pace, averaging increases of 143,000 a month from July through September. In the first half of the year, employment gains averaged 195,000. Labor Department figures due tomorrow are projected to show an increase of 120,000 for October, according to the Bloomberg survey median.

Fourth Quarter

Economic 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, 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.

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 effect of the budget impasse on the economy, the recent slowdown in job growth and a pause in the housing market help explain why U.S. central bankers are continuing with $85 billion in monthly asset purchases.

“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.”

Stocks continue to rise, with the Dow Jones Industrial Average advancing to a record yesterday, as Fed policy makers hold off on trimming the pace of asset purchases.

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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