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Q3 GDP: Economy Muddling Through

Comment by Kathy Bostjancic, Director for Macroeconomic Analysis, The Conference Board

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NEW YORK, Oct. 26, 2012 /PRNewswire/ -- The U.S. Bureau of Economic Analysis today reported 2.0 percent growth in real gross domestic product for the third quarter of 2012.

U.S. economic growth is slow, but not slowing. It is difficult for the domestic economy to grow any more robustly, given the relatively soft pace of consumption and investment, weak sentiment among businesses, continued austerity for state and local government spending, weak exports, and the looming "fiscal cliff." Moreover, the negative headwinds from Europe and Asia look to be more persistent than previously thought. On the plus side, housing is finally turning into a positive factor after a long decline. Nevertheless, the U.S. remains poised to at least partially fall off the "fiscal cliff," as politicians are likely to let the payroll tax cut and extended unemployment benefits expire at the end of this year. This should depress economic growth to below 2 percent in the first half of 2013. Assuming the economy does not go off a deeper cliff, however, activity could resume to more than 2.5 percent growth in the second half of the year. For that to happen, wage growth would have to pick up and give some much-needed impetus for consumption.

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