Economic growth beats expectations, but consumer spending still low

Higher taxes and slow wage growth weigh down consumer spending, which is crucial to US economy

While the GDP growth will be seen as a positive development, it came before October's government shutdown which economists says cost the US economy as much as $24 billion.
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U.S. economic growth exceeded expectations in the third quarter of this year as businesses restocked shelves ahead of a 16-day government shutdown – but at the same time, the slowest expansion in consumer spending in two years could throw more cold water on the country’s still-struggling economic recovery.

Gross domestic product (GDP) expanded at a 2.8 percent annual rate, the quickest pace since this time last year, the Commerce Department said Thursday. It was up from a 2.5 percent growth rate in the second quarter of 2013, and exceeded most economists' expectations.

However, consumer spending – which accounts for more than two-thirds of U.S. economic activity – expanded 1.5 percent, the slowest pace since the second quarter of 2011.

Higher taxes this year and slow wage growth have been hitting consumers' wallets since the start of the year.

Some of the slowdown in consumption also reflected weak demand for utilities because of unseasonably cool weather in the summer. But households have also been wary of loosening their purse strings as the pace of job gains slowed significantly during the quarter.

Growth in income at the disposal of households slowed to 2.5 percent in the third quarter, and the personal saving rate picked up to 4.7 percent.

A separate report from the Labor Department suggested the jobs market continued to gradually improve. Initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 336,000 last week.

Overall government activity grew at a slight 0.2 percent rate, reflecting a 1.5 percent rise in state and local government spending – the best showing since the spring of 2009. Federal government spending continued to drop, falling at a 1.7 percent rate in the third quarter.

A 16-day partial government shutdown last month is expected to keep the economy from showing acceleration in the final three months of this year. Many analysts say it could cut more than half a percentage point from growth in the October-December quarter. The shutdown cost the U.S. economy $24 billion, according to Beth Ann Bovino, an economist at Standard & Poor's.

Al Jazeera with wire services

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