Cautious consumers seen curbing U.S. economic growth
WASHINGTON (Reuters) - U.S. economic growth likely slowed a bit in the third quarter as consumers kept a lid on spending, supporting the Federal Reserve's decision to maintain its current pace of bond purchases to stimulate activity.
Gross domestic product probably expanded at a 2.0 percent annual rate, according to a Reuters poll of economists, moderating from a 2.5 percent clip in the second quarter.
The anticipated deceleration will also reflect a pullback in business spending and some ebbing in home building as a run-up in interest rates over the summer took a toll.
The Commerce Department's first estimate of third-quarter GDP on Thursday at 8:30 a.m. will offer confirmation that the economy lost momentum even before October's 16-day government shutdown, which is expected to weigh on growth over the final three months of the year.
"There are no signs that the economy is picking up," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York. "If you add the shutdown to an already subdued underlying trend, it's difficult to see the economy taking off in the near term."
The economy grew at a 1.8 percent rate in the first half of 2013, held back by a tightening in fiscal policy at the start of the year. Growth had been expected to gain speed in the fourth quarter as the drag from fiscal policy lifted.
The report is expected to paint a picture of anemic domestic demand and could be seen as validating the Fed's decision to stick to its $85 billion monthly bond-buying program.
With near-term growth prospects not that bright, a reduction in the purchases, which aim to keep interest rates low, is not expected this year.
"What you saw in the third quarter will be continued in the fourth quarter," said Doug Handler, U.S. chief economist at IHS Global Insight in Lexington, Massachusetts. "We expect the tapering to begin somewhere in the first quarter of 2014."
Sluggish consumer spending will account for much of the slowdown in growth in the third quarter, against the backdrop of a modest rise in household disposable income.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is forecast to have expanded at its slowest pace in 2-1/2 years. It grew at a 1.8 percent rate in the April-June period.
Some of the anticipated slowdown in consumption is blamed on weak demand for utilities because of unseasonably cool weather in the summer. But households have also not been keen to loosen their purse strings as the pace of job gains slowed significantly during the quarter.
Business investment also likely eased, with much of the slowdown in spending on equipment. Spending on nonresidential structures, including mining and drilling, probably saw a second consecutive quarter of robust growth.
HIGH MORTGAGE RATES SLOW HOUSING
A spike in mortgage rates is expected to have taken some edge off home building activity. While growth in spending on residential construction is still seen as strong, it will probably be the slowest pace since the second quarter of 2012.
But the economy should get some support from an improvement in global demand. Export growth is expected to have picked up after rebounding in the second quarter, which should help to limit the rise in the trade deficit.
The decline in government spending probably ran its course in the third quarter, with sturdy growth expected in spending by state and local authorities. Economists said this fading fiscal drag would have set up the economy on a stronger growth path in the fourth quarter, were it not for the government shutdown.
"An inflection to a higher growth path as we move past peak fiscal drag will be delayed beyond the fourth quarter ... thanks to the shutdown," said Ted Wieseman, an economist at Morgan Stanley in New York.
Restocking by businesses was expected to add modestly to third-quarter growth. Growth excluding inventories was seen below the second-quarter's 2.1 percent rate.
Other details of the GDP report are expected to show some pick-up in inflation during the quarter, but not enough to alter the picture of benign price pressures.
(Reporting by Lucia Mutikani; Editing by Leslie Adler)