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US growth seen up in Q3, but still slack

Washington, October 29, 2010

US economic growth likely edged up in the third quarter but not enough to chip away at high unemployment or change perceptions of more monetary easing from the Federal Reserve next week.

A government report on Friday is expected to show gross domestic product expanded at a 2.0 percent annual rate as consumer spending accelerated and the trade deficit narrowed, compared with a 1.7 percent pace in the second quarter, according to a Reuters survey.

"Growth is still positive, but a bit disappointing. It's not where we would like it to be at this point of the recovery," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.   

The GDP report will probably not dissuade Fed officials at their November 2-3 meeting from announcing a second round of bond purchases next week to push interest rates down further and energize the recovery. But it is likely to color their debate.   

Analysts expect the Fed to announce bond purchases of at least $100 billion a month to push borrowing costs lower and spur businesses to expand investment and hiring.

The economy is experiencing a slow recovery by historical standards, with unemployment at 9.6 percent and Americans increasingly nervous about the future.
 That is expected to shift the country's political landscape in Tuesday's congressional elections, seen as a vote on President Barack Obama's performance on the economy. His Democratic party is expected to suffer big losses.   

The US central bank cut overnight interest rates to near zero in December 2008 and has bought about $1.7 trillion worth of Treasury and mortgage-related debt since then.

The Commerce Department is to release its advance report on third-quarter GDP, which measures total goods and services output within US borders, at 8:30 am (1230 GMT).   

Economists say a growth pace of at least 3.5 percent, driven by solid domestic demand and exports, over several quarters is needed to bring down high unemployment.   

"The basic problem is that, in the past the economy has typically gotten its lift from consumers buying houses. We are not going to see that in this cycle," said Steve Blitz, a senior economist at ITG Investment Research in New York.

"In the past when you had a recession you had delayed consumption. That's not there now for a variety of reasons and this is what is deleveraging of the economy is about."    

Confronted with an uncertain economic outlook, consumers have cut back on spending in favor of reducing their debt burden. Households are spending again, but at nowhere near the levels seen before the 2007-09 recession.  - Reuters 




Tags: US | Recession | grwoth |

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