Plus: U.S. Economy Grows at Slightly Faster Pace in Q3 and Jobless Claims Drop to Three-Month Low.

U.S. Economy Grows at Slightly Faster Pace in Q3
The United States economy grew at a slightly faster pace in the third quarter, but not enough to raise hopes that the persistently high unemployment rate may start to decline, the U.S. Department of Commerce indicated on Friday.

In its first estimate for the third quarter, the Commerce Department said gross domestic product (GDP), the broadest measure of U.S. goods and services, rose at a 2 percent annual rate between July and September, the fifth consecutive quarter of expansion and a slight improvement over the 1.7 percent pace in the second quarter of this year.

Spending by U.S. consumers, the largest component of GDP, helped boost last quarter’s economic growth with a 2.6 percent annual rate, the strongest quarterly increase since a 4.1 percent gain at the end of 2006 before the recession hit. Another notable factor in growth was businesses spending more to build up their inventories, a trend unexpected to be repeated in the coming months. Business investment and federal government spending also contributed to growth, while international trade and the housing sector were drags on the economy.

Imports in the third quarter once again grew faster than exports, leaving a significant trade gap. Real exports grew 5 percent in the third quarter, compared with a 9.1 percent increase in the second. Imports grew at an annual rate of 17.4 percent, compared with an increase of 33.5 percent.

The tepid rise in GDP couldn’t budge the nation’s stubbornly high 9.6 percent unemployment rate.

“The GDP numbers show that the economic recovery remains intact, but is very fragile,” Mark Zandi, the chief economist for forecaster Moody’s Analytics, said in a McClatchy report. “Two percent growth is not sufficient to generate enough jobs to even forestall a further increase in unemployment, which is drifting higher.”

Jobless Claims Post Sharp Drop
New initial jobless claims fell sharply in the latest week reported, marking the second consecutive weekly drop in new jobless claims. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending Oct. 23 decreased by 21,000 to 434,000, down from the previous week’s revised total of 455,000. The four-week moving average fell 5,500 to 453,250.

The latest jobless data brought the jobless-claims level down to a three-month low, indicating that the U.S. labor market may be slowly starting to stabilize.

“Some analysts said difficulties adjusting the data, which followed the Columbus Day holiday, for seasonal factors may have skewed the numbers but others disagreed,” Reuters reports. “Claims tend to rise in the week after a public holiday and a department official noted that the rise in applications had not been as large as the model used to smooth the data had expected, leading to a decline.”

Depending on its sustainability, the improvement in job market conditions — or at least employment data — is also likely to play a role in shaping broader policies.

“Thursday’s weekly claims data is the last report before voters head to the polls for the midterm elections on Tuesday,” the Wall Street Journal explains. “The stubbornly high unemployment rate is seen as a key issue.”

Manufacturers More Uncertain Than Optimistic
U.S. manufacturers have shifted from being optimistic to doubtful about the national economy’s prospects for the next year, though revenue forecasts remain strong among individual firms, according to a new report.

The latest edition of the PricewaterhouseCoopers (PwC) U.S. Manufacturing Barometer, released last week, found that the majority of industrial product manufacturers (52 percent) feel uncertain about the U.S. economy over the next 12 months. Thirty-five percent are optimistic about economic prospects, down from 45 percent the previous quarter, while 13 percent remain pessimistic.

“The overarching theme of uncertainty in this quarter’s findings definitely indicates that industrial manufacturers are approaching spending and overall business decisions in a cautious and conservative manner, certainly in the short-term,” Barry Misthal, the U.S. industrial manufacturing leader for PwC, said in an announcement of the findings. “It will be interesting to watch how this impacts the market over the long term.”

For the third consecutive quarter, regulatory pressure was perceived as the primary obstacle to economic growth, cited by 77 percent of respondents to the survey, up from 63 percent last quarter. Lack of demand was cited as another major challenge among 62 percent of manufacturers, compared to 50 percent the previous quarter, while taxation policies ranked high among 60 percent. Concerns about competition from foreign markets also increased, rising from 35 percent in the second quarter to 43 percent in the third quarter.

Manufacturers’ forecasts for the coming year are also affecting their hiring plans, as rising uncertainty has caused more employers to become hesitant about adding staff. Forty-two percent of respondents to the PwC survey plan to hire new employees in the next 12 months, down from 47 percent in the second quarter, while 8 percent plan to reduce staff levels. PwC’s net workforce projection was +0.4 percent, down from +1.8 percent in Q2 2010.

“While hiring plans have dipped from last quarter, the number remains positive overall,” Misthal added. “It also speaks to a potential trend in industrial manufacturing companies placing greater emphasis around operational spending and new investments over hiring for the next 12 months. This is particularly significant when considering 43 percent of manufacturers expressed plans for major new investments in capital in the coming year, a strong uptick compared to where that number has been in previous quarters.”