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Consumer-fed US economy beats forecasts, grows 2% in 3Q 2012

Consumer-fed US economy beats forecasts, grows 2% in 3Q 2012
The US economy beat the forecast 1.8% economic growth in the third quarter. The new economic drivers of consumer and government spending seem to be weak backbones, as experts remain worried about such a “half-speed growth mode.”

The number released by the country’s Department of Commerce on Friday marked an improvement from a previous quarter, when the world’s biggest economy expanded 1.3%.

But such GDP figures didn’t inspire experts, with David Wyss, an economics professor at Brown University, saying that the US economy is now “stuck in this half-speed growth mode.”

While growth remains modest, the factors supporting the economy have changed. The economy grew mostly due to increased consumer spending, which was coupled with improved housing; the market that first added to growth after a six-year slump. People in the US increased their spending 2% between July-September, which marked another increase from a 2Q growth of 1.5%. Spending on homebuilding and renovations increased more than 14%.Federal government spending expanded sharply on the largest increase in defense expenditure in more than 3 years.

A preliminary report on US business activity in October also said “the consumer side of the US economy” is “most likely providing the main impetus behind ongoing economic growth in the second half of the year.”

“…the manufacturing sector is currently acting as a drag in terms of both economic growth and the labour market,” it added.

Exports and business investment, that used to drive the US economy through most of the recovery – started to fade away. Businesses have grown more cautious since the spring, in part because customer demand has remained modest and exports have declined as the global economy has slowed.

Many companies in the US fear that their sales could shrink further if recession spreads throughout Europe and growth slows further in China, India and other developing countries.

Possible tax increases and government spending cuts that should kick off next year if the Congress doesn't reach a budget deal added to the overall caution.

Drought this summer in the Midwest came as another drag on the US economy, as it sharply cut agriculture stockpiles and reduced growth by nearly a half-point.

The US economy is largely expected to be recovering at this sluggish pace till after the first half of 2013, with a pick up hoped to start in the second half of next year.

The report is the last snapshot of economic growth before Americans choose their President in 11 days time.