BUSINESS

Is the economy getting better?

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Typically, home construction drives growth during an economic recovery.

But builders have been contributing much less to the economy this time.

Wyss said that the collapse of housing had probably depressed annual growth by as much as 1.5 percentage points in the past two years.
Paul Ashworth, chief U.S. economist for Capital Economics, predicts that growth will cool in the fourth quarter and next year.

"While our baseline forecast does not include an outright contraction, we expect GDP growth to average a very lackluster 1.5% next year," Ashworth said in a note to clients.

Other economists are a bit more optimistic. The breakthrough in Europe could help, as long as a final deal is implemented. At a minimum, that would remove what many economists had considered a major threat to the U.S. economy.

Few are changing their forecast based on the deal because they had already assumed an agreement would be reached.

"The Europeans haven't solved their long-term problems, but they did address the near-term issues and that helps support the belief that we will be able to dodge a U.S. recession," said Mark Zandi, chief economist at Moody's Analytics.

Zandi forecasts growth of 1.9 percent for all of 2011 and 2.7 percent in 2012.

Economists think growth in consumer spending, which accounts for about 70 percent of economic activity, will be restrained until incomes start growing at healthier levels. That is unlikely until hiring picks up.

Consumers powered much of the growth in the third quarter. They spent at an annual rate of 2.4 percent. Many bought more furniture and clothing.

And spending on services rose 3 percent, the most in more than five years. Much of the gain was due to consumers paying more for health care and to cool their homes during an unseasonably hot summer.

Still, spending rose even though after-tax incomes adjusted for inflation fell at a rate of 1.7 percent in the summer. It was the biggest decline since the third quarter of 2009 - just as the recession was ending.

Businesses also helped boost third-quarter growth by stepping up their investment in equipment and software. That category surged 17.4 percent - nearly three times the rate from spring. They also invested more in building, a sign that some businesses could be expanding despite the sluggish economy.

But what would help most is if those businesses hired workers.

"With consumers and businesses spending and exports still growing, the expansion is broad-based and sustainable," said Joel Naroff of Naroff Economic Advisors. "If we can only get some better job gains, confidence will begin to return, and we can accelerate the recovery."

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