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Recovery's Pace Slower Than First Thought

The economy in the third quarter grew at a slower pace than first thought, the Commerce Department said Tuesday in a report that pegged expansion in the July-September period at 2.8 percent.

The latest data are lower than the 3.5 percent annualized growth reported a month ago and reflect weaker consumer spending and commercial construction as well as a larger trade deficit.

The new reading on the gross domestic product — a measure of all goods and services produced in the U.S. — was a bit weaker than the 2.9 percent growth rate most economists had expected to see in the revision.


The new figures still place the economy squarely in recovery mode after four straight quarters in which it contracted in the worst recession since the 1930s.

But the figures still suggest a slow recovery, said Gus Faucher of Moody's

"They tell us that the recession is over and the economy is expanding, but I think near-term growth is going to be a bit weak and that means that the unemployment rate is going to move a bit higher," Faucher said.

"I don't expect to see a jobless recovery, but on the other hand, we've got a huge amount of unemployment out there and even with very strong job gains, it's going to take a long time for people without jobs to find work again," he added.

Most economists forecast growth of between 2.5 percent and 3 percent in the current fourth quarter.


The expansion is unlikely to be robust enough to bring down the unemployment rate, which now stands at 10.2 percent, anytime soon.

Many analysts think the economy will weaken again next year, to around 1 percent GDP growth, as the effect of the $787 billion stimulus package wanes and consumers pay off credit card debt.

A positive sign is spending on homes and other residential projects, which has soared at an annualized pace of 19.5 percent last quarter, a little slower than the 23.4 percent rate first estimated. Meanwhile, spending on big-ticket "durable" goods — including cars — jumped at a pace of 20.1 percent, down from 22.3 percent first reported.

The jump in the third quarter was mainly a result of the government's popular Cash for Clunkers rebates and an $8,000 tax credit for first-time homebuyers. The clunkers program ended in August, but the tax credit has been extended and expanded to include existing homeowners.

Also Tuesday, it was reported that Americans' confidence in the economy improved slightly in November, but they remain gloomy amid a weak job market heading into the holiday season. The Conference Board said its consumer confidence index increased slightly to 49.5, up from a revised reading of 48.7 in October. Economists surveyed by Thomson Reuters expected a reading of 47.7.

Stocks opened lower after the GDP report was released. The cautious trading comes after stocks soared Monday on a weaker dollar and an upbeat report on housing.

In the revised GDP report, overall consumer spending — a major shaper of national economic activity — grew at a pace of 2.9 percent last quarter. That was down from a 3.4 percent growth rate first estimated, but it still marked the best showing since early 2007.

Businesses cut back 15.1 percent on commercial construction, deeper than the 9 percent annualized reduction first estimated. They also trimmed stockpiles of goods by $133.4 billion last quarter, slightly more than initially estimated.

The biggest fear is a so-called double-dip recession that could be triggered by another contraction in consumer spending, which makes up 70 percent of all economic activity but has been weighed down by individual debt and unemployment.

Last week, Federal Reserve Chairman Ben Bernanke warned that the recovery faces "important headwinds," which will make consumers cautious in their spending. Those factors "likely will prevent the expansion from being as robust as we would hope," he said.

From NPR and wire service reports

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