Earning My Money

The economy grew slightly faster last summer as Americans spent a little more — but far too little to reduce the high unemployment that is frustrating voters.

The Commerce Department said Friday that the economy expanded at a 2 percent annual rate in the July-September quarter. It marked an improvement from the feeble 1.7 percent growth in the April-June quarter.

Consumers helped boost last quarter's economic growth with 2.6 percent growth in spending, slightly better than the 2.2 percent rate in the second quarter.

Businesses also spent more to replenish their stockpiles. That trend has provided a big lift to the economy since the recession ended. But economists note that businesses will no longer need to rebuild their stockpiles so much in coming months. So the economy won't benefit as much from such spending in the year's final three months.

The same goes for government spending. Even though the federal government contributed to growth in the July-September quarter, stimulus money is drying up at a time when state and local governments are cutting spending.

Consumer spending is important because it accounts for roughly 70 percent of national economic activity, and thus plays a major role in determining the vigor of the economic rebound.

Last quarter's gain marked the biggest quarterly increase since a 4.1 percent gain at the end of 2006 before the recession hit.

A stock-market rebound made people feel better about spending. Bargains, on everything from cars to home furnishings, also drew them out.

Still, a large amount of the money spent went oversees. Spending on imported goods exceeded the money brought in from exports, and that hampered the nation's growth rate.

Without more spending by consumers and businesses going forward, economists fear little downward movement in the 9.6 percent unemployment rate.

"We're just muddling along," said Ken Mayland, president of ClearView Economics. "I think it is going to be hard to break out of this sluggish-growth rut."

The government's latest snapshot of the country's economic health comes just days before Americans go to the polls to elect a new Congress. Angry voters could cost Democrats control of the House, and maybe the Senate. The fragile economy means Americans with jobs are seeing scant wage gains and those without are facing fierce competition for the few openings that become available. Home foreclosures have soared.

President Barack Obama's top economist, Austan Goolsbee, acknowledged faster growth is needed to drive down unemployment. "Given the depth and severity of the recession, considerable work remains before our economy is fully recovered," he said.

Another report out Friday from the Labor Department showed slow growth in workers' compensation, including wages and benefits. The weak jobs market has reduced workers' bargaining power.

To strengthen the economy, the Federal Reserve is all but certain to launch a new aid program next week. It is likely to start buying government bonds again in a bid to make loans cheaper and spur people to spend more. Doing so would help economic growth.

Businesses also played a role in the economy's slightly better performance during the July-September quarter.

In addition to the inventory rebuilding, companies boosted spending on equipment and software at a 12 percent annualized rate. Still, that was roughly half the pace seen in the prior quarter.

And companies increased spending on commercial construction projects, such as office buildings and factories, for the first time in more than two years. Such spending grew at a 3.9 percent pace in the July-September quarter.

However, companies slashed spending on housing projects last quarter at an annualized pace of nearly 30 percent. That followed a big burst of spending in the April-June quarter, which was supported by the government's now-expired homebuyer tax credit.

The housing market, which led the country into recession, remains a weight on the economy.

The nation's trade deficit also restrained growth last quarter, although not by as much as in the prior three months.

With consumers spending more, they socked less into their savings. They saved 5.5 percent of their disposable income in the July-September quarter, down from 5.5 percent in the April-June quarter. That's still a high

name deepak kumar jha

pgdm(2010-12)