The recovery fundamentally remains on the same slow and steady track that it has followed since the recession ended in 2009, economists said. Many expect growth in the fourth quarter to fall to less than 2 percent.
“It’s generally good news, but nothing that would cause us to alter our baseline forecast all that much,” said Mike Schenk, vice president of economics and statistics for the Credit Union National Association.
The predictions for job growth are more optimistic. The Labor Department is slated to release its closely watched monthly tally of job creation and unemployment Friday. Economists expect it will show that the country added 185,000 jobs in November while the jobless rate ticked down to 7.2 percent.
The key question is whether those expected improvements will be enough to convince the Federal Reserve that the economy no longer needs its support. The central bank has been pumping $85 billion a month into the recovery, and investors have been watching closely for signs that it will begin to reduce its stimulus. Fed officials are slated to meet in Washington later this month, and Friday’s data will likely factor heavily into their decision.
Strong data from the labor market would signal that the private sector is healing despite headwinds from Washington. Government spending cuts and higher taxes depressed GDP growth by as much as 1.5 percentage points, analysts estimate.
Yet businesses hired at a rapid clip in October despite the federal government shutdown and partisan gridlock over the national debt limit. With hopes high that lawmakers will reach a deal before new budget deadlines early next year, the runway could be clear for the recovery to take off in 2014.
Schenk said that credit unions are reporting higher demand for loans, particularly for new and used cars. Meanwhile, home prices are rising, helping families rebuild wealth lost during the financial crisis.
“It underlies the fact that there is momentum there,” Schenk said. “There is promise of more activity in the household sector.”
But businesses seemed to overestimate the strength of consumers during the third quarter. Roughly a third of the rise in GDP was the result of increased inventory. Household spending slowed, though, and the government on Thursday revised its estimate even lower.
“Overzealous production last quarter is likely to severely contract from the current quarter’s growth,” said Lindsey Piegza, chief economist at Sterne Agee.
With the holiday season in full swing, it will be up to the consumer to bring some economic cheer in the final months of the year. IHS Global Insight, a consulting firm, forecast that holiday retail sales will approach $600 billion. That would represent a 3 percent improvement from last year, the slowest rate of growth since 2009.
Schenk said the consumer may still be cautious but is back in the game. He expects the economy to expand at a 3 percent annual rate next year.
“It’s not all the way back to normal, but it’s getting there,” he said. “Given the headwinds in the federal government sector, it’s pretty impressive overall.”