New York: The US economy grew at an annual rate of 2.8 percent in the third quarter, the government said Thursday in a report that signaled little momentum for jobs growth.
Although it was the strongest pace of GDP growth in a year, the headline figure masked underlying weakness in vital consumer spending, suggesting that a poor October jobs report would be released Friday.
The gross domestic product figure accelerated in the third quarter from a 2.5 percent pace three months earlier, surprising analysts who expected the Commerce Department`s first read would show a 1.9 percent expansion.
It was the department`s first estimate of GDP -- the measure of goods and services output -- growth for the July-September quarter; the number could change significantly in its two subsequent estimates.
"Unfortunately the details of this report are more likely to send chills up your spine than to warm your heart," said Robert Brusca, chief economist at FAO Economics.
The report came a day ahead of the Labor Department`s October figures, widely expected to show job growth slowed to 100,000 from an already tepid 148,000 in September and the unemployment rate rose to 7.3 percent.
Analysts predict the economy will take a hit in the fourth quarter, after a Washington budget battle forced a 16-day government shutdown in October that shaved an estimated $24 billion from the economy.
Joel Naroff of Naroff Economic Advisors said the extent that the shutdown affected the jobs data was a mystery. "There is not a lot of hope for a good report," he said.
A significant amount of the third-quarter GDP surge was due to private inventory investment, which added 0.83 percent to the GDP change, about double its contribution in the prior quarter.
Growth in consumer spending slowed to 1.5 percent from 1.8 percent in the second quarter.
"The all-important service sector, the sector that dominates job growth, saw sales rise by 0.1 percent at a seasonally adjusted annual rate. This is a pathetically weak showing," Brusca said.
"You need to go back 17 quarters to find a weaker quarterly growth rate for consumer services spending."
Personal income growth slowed to 3.8 percent, from 4.1 percent in the second quarter, while the increase in real disposable income -- adjusted for taxes and inflation -- also fell under pressure from rising consumer prices.
Sal Guatieri of BMO Capital Markets said the third-quarter weakness in consumer spending and business investment, alongside the large gains in inventories and the government shutdown, "will weigh on growth in the current quarter."
Scott Hoyt of Moody`s Analytics warned about headwinds from Congress`s decision to use stop-gap budget and debt ceiling measures to reopen the federal government and avoid a debt default.
"Lawmakers` agreement to extend funding for the government and suspend the debt limit into early next year forestalled worse economic damage for now, but as long as lawmakers stay deadlocked over the direction of the federal budget, the economic recovery will not gain momentum," he said.
The White House leaped on the upbeat GDP number. It is "an indication that the recovery was continuing to gain traction in the months before the government shutdown," said Jason Furman, chairman of the Council of Economic Advisers.
"We now have an opportunity to build on this progress by increasing certainty for businesses and investing in jobs and growth, while avoiding the types of self-inflicted wounds that restrained the economy in the early part of the fourth quarter," Furman said.
The White House meanwhile issued a report outlining the impacts and the costs of the October 1-16 government shutdown.
The total cost of pay plus benefits for furloughed federal workers was estimated at $2.5 billion, according to the Office of Management and Budget report.
OMB Director Sylvia Mathews Burwell in a conference call said the amount was "a conservative number" that did not cover the costs of preparing for the shutdown, the actual closure and finally the reopening of government.