Nov 7 - The U.S. economy grew at its fastest pace in a year in the third quarter, but consumer and business spending were weak. Fred Katayama reports.
Don't count the economy out. It grew faster than expected in the third quarter. GDP grew 2.8 percent, surprising economists who had expected the pace of economic growth to shrink. That's the fastest pace in one year as GDP accelerated over the second quarter's 2.5 percent rise. Boosting the economy: inventories. But the restocking of shelves by businesses masked the weaknesses underlying the economy. Take away inventories, and the economy grew at a 2 percent rate. Consumers, businesses, and the federal government were gun-shy about spending. Consumer spending, which makes up more than two-thirds of economic activity expanded at its slowest pace in more than two years. Business spending on equipment fell. And federal spending continued to decline. These weak signs validate the Fed's decision to keep up its current pace of bond purchases. Wells Fargo Securities senior economist Sam Bullard said, "We saw a softer growth when you strip out the build-up in inventories. We have a little pickup in the fourth-quarter right now. ... This is not a game-changer for people's forecast for fourth-quarter GDP and the Fed's policy outlook." Two bright spots: spending on home construction rose strongly despite the spike in interest rates. And exports outpaced imports, limiting the rise of the trade deficit.