* Third-quarter GDP grows at 2.8 percent rate, fastest in a
* Inventory build, weak imports lift output
* Consumer, business spending lose momentum
* Data points to underlying sluggishness in economy
By Lucia Mutikani
WASHINGTON, Nov 7 (Reuters) - U.S. economic growth
accelerated in the third quarter as businesses restocked
shelves, but the slowest expansion in consumer spending in two
years suggested an underlying loss of momentum.
Gross domestic product grew at a 2.8 percent annual rate,
the quickest pace in a year, after expanding at a 2.5 percent
clip in the second quarter, the Commerce Department said on
Inventories, however, accounted for a hefty 0.8 percentage
point of the advance made in the third quarter.
A gauge of domestic demand rose at just a 1.7 percent rate,
which economists said was insufficient to encourage the Federal
Reserve to trim its bond purchases. The Fed has been buying $85
billion in bonds each month to keep borrowing costs low.
"We haven't seen an acceleration in growth yet that the Fed
is looking for to begin tapering," said Joshua Dennerlein, an
economist at Bank of America Merrill Lynch in New York.
Economists had expected third-quarter growth to come in at a
2 percent pace.
Consumer spending, which accounts for more than two-thirds
of U.S. economic activity, expanded at a 1.5 percent rate, the
slowest pace since the second quarter of 2011. It grew at a 1.8
percent rate in the April-June period.
The slowdown in consumer spending suggests some of the
inventory accumulation by businesses was probably unnecessary.
That could force businesses to cut back on inventories,
which would weigh on what is already expected to be weak growth
in the fourth quarter because of the 16-day government shutdown
"Should demand accelerate heading into year end, businesses
should be better-positioned to meet that demand," said Jim
Baird, chief investment officer at Plante Moran Financial
Advisors in Kalamazoo, Michigan.
"However, in the absence of a surge, future production may
need to be trimmed to bring inventories back in line."
Economists at Goldman Sachs lowered their fourth-quarter GDP
estimate on the faster pace of inventory accumulation in the
third quarter. They now expect a growth rate of 1.5 percent,
rather than the previously estimated 2 percent pace.
HOUSEHOLDS, BUSINESSES CAUTIOUS
The weak consumer spending figure and a surprise interest
rate cut by the European Central Bank on Thursday lifted U.S.
Treasury debt prices. The dollar raced to a more than seven-week
high against the euro, but stocks on Wall Street fell.
Some of the slowdown in consumption in the third quarter
reflected weak demand for utilities because of unseasonably cool
weather. But households have also been wary of loosening their
purse strings given a slowdown in employment growth.
Though growth in household disposable income slowed to a 2.5
percent rate in the third quarter, the saving rate picked up to
4.7 percent, underscoring the caution among consumers.
A separate report from the Labor Department suggested the
jobs market continues to gradually improve. Initial claims for
state unemployment benefits fell 9,000 to a seasonally adjusted
336,000 last week.
The economy grew at a 1.8 percent rate in the first half of
2013, held back by a tightening in fiscal policy at the start of
Growth had been expected to gain speed in the fourth quarter
as the drag from fiscal policy lifted. Economists, however, now
estimate the partial shutdown of the federal government last
month will shave as much as 0.6 percentage point from GDP.
Fiscal policy is clouding an already uncertain economic
outlook and making businesses cautious about ramping up hiring.
The GDP report showed they are also holding back on spending
on capital goods. Overall business investment moderated in the
third quarter, as spending on equipment fell for the first time
in a year. Spending on nonresidential structures, including
mining and drilling, rose for a second consecutive quarter.
"The private sector decelerated over the summer, providing
less of a cushion than we would like for the government shutdown
in October," said Diane Swonk, chief economist at Mesirow
Financial in Chicago.
Apart from inventories, the economy got some support from a
slowdown in import growth, which limited the rise in the trade
deficit but also underscored the weakness of domestic demand.
Trade added 0.31 percentage point to growth.
Sturdy growth in spending by state and local authorities
pushed government spending up for the first time in a year, but
federal spending continued to drop.
The housing market appeared to weather a spike in mortgage
rates, with spending on residential construction increasing