WASHINGTON: The US economy grew at an annual rate of 2.8 percent in the third quarter, the government said Thursday, but lackluster consumer spending pointed to a weak finish to 2013.
The world's largest economy accelerated from a 2.5 percent pace in the second quarter, surprising analysts who had expected the Commerce Department's first read on third-quarter gross domestic product would show only a 1.9 percent expansion.
It was the strongest pace of GDP growth in a year. But analysts forecast a weaker fourth quarter, after a Washington budget battle forced a 16-day government shutdown in October that shaved an estimated $24 billion from the economy.
"Unfortunately the details of this report are more likely to send chills up your spine than to warm your heart," said Robert Brusca, chief economist at FAO Economics.
It was the department's first estimate of GDP growth for the third quarter; the number could change significantly in its two subsequent estimates.
The July-September pick-up was mainly due to a sharper decline in imports from the second quarter and accelerating rises in private inventory investment and state and local government spending.
A significant amount of the increase was due to private inventory investment, which added 0.83 percentage point to the GDP change, about double its contribution in the prior quarter.
Federal government spending, hit by "sequester" budget cuts that began in March, fell 1.7 percent following a fall of 1.6 percent in the second quarter.
Inflation heated up, led by price jumps in energy goods and services, but remained well below the two percent target of the Federal Reserve for price stability.
The price index rose 1.8 percent in the third quarter, following a 0.2 percent rise in the second. Excluding food and energy prices, it was up 1.5 percent, compared with a 0.8 percent rise in the prior quarter.
Consumer spending slows
Significantly, growth in consumer spending, which accounts for roughly two-thirds of US activity, slowed to 1.5 percent from 1.8 percent in the second quarter.
"The all-important service sector, the sector that dominates job growth, saw sales rise by 0.1 percent at a seasonally adjusted annual rate. This is a pathetically weak showing," Brusca said.
"You need to go back 17 quarters to find a weaker quarterly growth rate for consumer services spending."
Personal income growth slowed to 3.8 percent, from 4.1 percent in the second quarter, while the increase in real disposable income -- adjusted for taxes and inflation -- also fell under pressure from rising consumer prices.
"The US economy had somewhat more pep in the previous quarter than expected amid solid gains in construction," said Sal Guatieri of BMO Capital Markets.
However, he added, weakness in consumer spending and business investment, alongside the large gains in inventories and the government shutdown, "will weigh on growth in the current quarter."
Scott Hoyt of Moody's Analytics warned about headwinds from Congress's decision to use stop-gap budget and debt ceiling measures to reopen the federal government and avoid a debt default.
"Lawmakers' agreement to extend funding for the government and suspend the debt limit into early next year forestalled worse economic damage for now, but as long as lawmakers stay deadlocked over the direction of the federal budget, the economic recovery will not gain momentum," he said.
The White House leaped on the upbeat GDP number. It is "an indication that the recovery was continuing to gain traction in the months before the government shutdown," said Jason Furman, chairman of the Council of Economic Advisers.
"We now have an opportunity to build on this progress by increasing certainty for businesses and investing in jobs and growth, while avoiding the types of self-inflicted wounds that restrained the economy in the early part of the fourth quarter," Furman said.
The White House meanwhile issued a report outlining the impacts and the costs of the October 1-16 government shutdown.
The total cost of pay plus benefits for furloughed federal workers -- at the peak 850,000 of them -- was estimated at $2.5 billion, according to the Office of Management and Budget report.
OMB Director Sylvia Mathews Burwell noted, in a conference call, that the amount was "a conservative number" that did not cover the costs of preparing the shutdown, actually shutting down and reopening the government.
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