GDP rises slightly to 2% in sign that economy remains sluggish

The U.S. economy continued to plod along at a sluggish pace in the third quarter, not enough to generate momentum or bring down the nation’s high jobless rate.

The nation’s gross domestic product, or the value of all goods and services produced inside U.S. borders, grew at an annualized rate of 2% in the July-to-September quarter, the Commerce Department said Friday.

That was a tad higher than the 1.7% GDP growth in the second quarter, but overall still paints a picture of a lackluster economy that expanded at a 3.25% annual rate in the second half of last year coming out of the recession, only to see a slowing since spring.

One positive sign was a pickup in consumer spending in the latest quarter. Inflation-adjusted personal consumption increased 2.6%, up from 2.2% in the second quarter, thanks largely to gains in expenditures for housing and other services.

Business investments also contributed positively to the third-quarter GDP, although the rate of increase in spending for equipment and software fell sharply to 12%, from nearly 25% the prior quarter. Government spending also added to the growth, but depressed home-building and the nation’s trade deficit continued to be a drag on the overall economy.


In addition, the latest quarter was boosted by a stronger buildup in inventories, which could curb production and overall economic growth in the coming months, especially if the holiday shopping season turns out poorly.

The overall 2% change in GDP was right in line with analysts’ forecasts, and won’t change expectations that the Federal Reserve on Wednesday will launch a new round of government bond purchases to drive down long-term interest rates and stimulate economic activity.

Before Friday’s report, economists were generally projecting somewhat stronger growth for the fourth quarter and heading into next year. Expectations of the Fed’s likely stimulus program already has pushed down the value of the dollar, which should bolster U.S. exports. Stock prices also have improved in the last quarter, giving consumers a little more confidence.

Uncertainties about the expiring Bush administration’s tax cuts loom as a potential negative, but analysts say even that could provide a lift in the next two months as people move some of their planned spending for 2011 to this year because of the risks of higher taxes.