Better-than-expected economic growth numbers from the government were spotlighted on the campaign trail Friday, yet economists fretted that a looming congressional showdown over taxes and spending may already be hurting the economy.
The U.S. economy accelerated from July to September, growing an annualized rate of 2 percent, the Commerce Department said in a report that slightly exceeded expectations.
After growing at just 1.3 percent in the second quarter, the economy sped up in the subsequent three months, beating analysts' expectations of a 1.8 percent third-quarter rate of growth in the gross domestic product, the broadest measure of U.S. trade in goods and services.
This number, coming less than two weeks before the presidential election, allowed the Obama administration to push its narrative that things are getting better.
"Over the last 13 quarters, the economy has expanded by 7.2 percent overall, and the private (sector) components of GDP have grown by 10.1 percent. While we have more work to do, together with other economic indicators, this report provides further evidence that the economy is moving in the right direction," Alan Krueger, the head of the White House Council of Economic Advisers, said in a statement.
If the glass was half full for the administration, Republican presidential candidate Mitt Romney saw a glass half-empty.
"Slow economic growth means slow job growth and declining take-home pay. This is what four years of President Obama's policies have produced. Americans are ready for change: for growth, for jobs, for higher take-home pay," Romney said in a statement shortly after the U.S. Bureau of Economic Analysis released the growth data.
While the third-quarter growth numbers were an improvement, economists warned that they might prove ephemeral, in part because government spending, mostly by the Defense Department, accounted for a third of the growth during the period.
"It's clearly not sustainable," said Scott Hoyt, senior director for forecaster Moody's Analytics. "The trend, particularly as we cross into the new year, is for government spending to be falling, not rising. This is clearly something that won't continue."
Friday's numbers also highlighted a confounding trend: Personal consumption was another big driver of the third-quarter growth, while business investment dragged against it. That reflects contradicting views in polls of sentiment.
On Friday, the University of Michigan/Thomson Reuters survey of consumer sentiment hit a five-year high, with consumers registering their most upbeat view since September 2007, months before the start of what's now called the Great Recession. But surveys from the Business Roundtable, the National Federation of Independent Business and other sources find executives and corporate decision-makers decidedly downbeat.
"Businesses understand the potential implications of the looming fiscal cliff, and consumers seem oblivious," Hoyt said. "We're seeing that in both the confidence figures and spending actions."
The drop across a range of business spending in Friday's growth data, particularly on inventories, suggests that the unresolved "fiscal cliff" - planned tax increases and deep cuts in federal spending if Congress can't reach a compromise late this year - already is harming the economy. Businesses expect things to get worse before they get better.
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