WRAPUP 2-U.S. GDP growth brisk, more jobs seen
(Adds September construction spending, Chicago purchasing management index; analysis; updates market reaction)
WASHINGTON, Oct 31 (Reuters) - The U.S. economy grew at a surprisingly brisk clip in the third quarter, the government said on Wednesday in one of a series of reports that implied a resilient expansion despite a battered housing sector.
Strong consumer spending and brisk exports helped push gross domestic product ahead at its fastest rate during the third quarter since the beginning of 2006, while there also were signs private employers were still building up payrolls.
GDP measures total production within U.S. borders. It grew at a 3.9 percent annual rate in the July-September quarter, up from 3.8 percent in the second quarter. It was the strongest growth since 4.8 percent in the first quarter of 2006.
Federal Reserve policy-makers still were expected to cut interest rates a quarter percentage point at the conclusion of a two-day meeting on Wednesday notwithstanding the GDP data that showed a strong economy in the summer.
"For the FOMC members, it really says that conditions did not deteriorate even though housing continues to crash," said economist Joel Naroff of Naroff Economic Advisors in Holland, Pa., but it won't preclude "taking out a little more insurance" in a rate cut to forestall a future housing-induced slowdown.
The GDP report showed that spending on housing construction declined for a seventh straight quarter. A separate Commerce Department report issued later -- on September construction spending -- said total spending was up 0.3 percent in September but residential spending slumped for a 19th straight month.
WORRIED, BUT STILL SPENDING
Though surveys show consumer confidence has suffered as housing prices and building withers, they still opened their wallets over the course of the summer.
Consumer spending grew at a 3 percent annual rate during the third quarter, up from 1.4 percent in the second quarter, a powerful stimulant since consumers fuel about two-thirds of national economic activity through their purchases of goods and services.
Stock prices were up moderately at midday while bond prices remained under pressure as investors grew more cautious about chances for interest-rate cuts amid a flood of positive news.
The Labor Department said employment costs -- a key determinant of the costs of production and potentially of inflation -- rose a smaller-than-expected 0.8 percent in the third quarter, down from 0.9 percent in the second quarter.
And separately, a closely watched report from ADP Employer Services estimated that private employers added 106,000 jobs in October. The private employment service's estimate was well ahead of forecasts among economists surveyed by Reuters for 60,000 jobs and implied the economy had more underlying strength than many had previously thought.
SOME WEAK SPOTS
There were a few signs of stress.
A report from the National Association of Purchasing Management said its Chicago business barometer fell to 49.7 in October from 54.2 in September, its first drop since February.
Also, U.S. crude oil futures surged more than $3 a barrel to above $90 -- a threat to costs throughout the economy as well as to consumers who face steadily rising prices at the gasoline pump.
The GDP report showed exports jumped in the third quarter at a 16.2 percent rate, the strongest increase since the fourth quarter of 2003 and a sign that a falling U.S. dollar is making American-made goods cheaper and more attractive to foreigners.
Prices rose more rapidly in the third quarter, with the so-called core index of personal consumption expenditures, which excludes food and energy items, climbing at a 1.8 percent rate. That compared with 1.4 percent in the second quarter and begins to push the boundary of the 1-to-2-percent rate for core price rises that is widely considered to be acceptable to Fed policy-makers.
Inventories of unsold goods also accelerated in the third quarter, to an annual rate of $15.7 billion compared with $5.8 billion in the second quarter.
Some of the build-up may represent stocking up for the coming holiday season between Thanksgiving and Christmas although inventories may also accumulate if sales of some goods begin to lag. In either case, however, rising inventories add to growth in the period in which they occur. (Additional reporting by Alister Bull in Washington and Steven C. Johnson, John Parry and Ellen Freilich in New York)
