* Third-quarter growth seen at 1.9 percent annual rate
* Consumer spending to account for bulk of gain
* Housing supportive, business spending and trade drags
* Growth pace still too sluggish to lower unemployment
By Lucia Mutikani
WASHINGTON, Oct 26 U.S. economic growth likely
picked up a bit in the third quarter as a last minute burst in
consumer spending offset cutbacks in investment by cautious
The stronger pace of expansion, however, is still expected
to fall short of what is needed to make much of a dent in
unemployment, and will offer little cheer for the White House
ahead of the closely contested Nov. 6 presidential election.
Gross domestic product probably expanded at a 1.9 percent
annual rate, according to a Reuters survey of economists,
accelerating from the second quarter's 1.3 percent pace. A pace
in excess of 2.5 percent would be needed over several quarters
to make substantial headway cutting the jobless rate.
"Two percent growth is still significantly weaker than what
would be necessary to make and sustain a successful transition
to a more self-sustaining recovery," said Millan Mulraine,
senior economist at TD Securities in New York.
The Commerce Department will release the third-quarter GDP
report at 8:30 a.m. (1230 GMT) on Friday, a little more than a
week before the election in which President Barack Obama is
trying to fend off Republican challenger Mitt Romney.
Since climbing out of the 2007-09 recession, the economy
faced a series of headwinds from high gasoline prices to the
debt turmoil in Europe and, lately, fears of U.S. government
austerity. It has struggled to exceed a 2 percent growth pace
and remains about 4.5 million jobs short of where it stood when
the downturn started.
Consumers appear, however, to have largely shrugged off the
impending sharp cuts in government spending and higher taxes,
which are due at the start of the year absent congressional
action. Indeed, they went on a bit of a shopping spree as the
quarter wound down, buying a range of goods -- including
automobiles and Apple Inc's iPhone 5.
Consumer spending, which accounts for about 70 percent of
U.S. economic activity, is expected to have grown at a rate of
at least 2 percent in the third quarter after increasing at a
1.5 percent pace in the prior period.
CAUTIOUS ON SPENDING
High stock prices and firming house values have made
households a bit more willing to take on new debt, supporting
consumer spending. A mild increase in wages has also helped.
But with about 23 million Americans either out of work or
underemployed, there are fears the current pace of spending will
not be sustained, especially if gasoline prices maintain their
recent upward march and families get a higher tax bill in 2013.
"We remain cautious on consumer spending as real disposable
income growth remains weak and we could see some pullback over
concerns on the fiscal cliff and potentially higher tax rates
next year," said Sam Bullard, a senior economist at Wells Fargo
Securities in Charlotte, North Carolina.
The so-called fiscal cliff refers to automatic tax hikes and
government spending cuts that will drain about $600 billion out
of the economy next year absent congressional action.
Fiscal cliff fears have already hammered business spending,
which is expected to have contracted in the third quarter for
the first time since the first three months of 2011.
Much of the drag in business investment, which had been a
source of strength for the economy, is expected to come from
weak outlays on equipment and software.
Spending on nonresidential structures is also expected to
have contracted after five straight quarters of growth.
In contrast, home building is expected to have posted
double-digit growth, thanks in large part to the Federal
Reserve's ultra accommodative monetary policy stance, which has
driven mortgage rates to record lows.
Inventories could also be a source of growth in the
third-quarter, but they are a bit of a wild card.
A drought in the country's Midwest has decimated grain and
corn crops. In the second quarter, the drought reduced farm
inventories. But nonfarm businesses might have been reluctant to
add to much to their stocks given the uncertain domestic
Government spending is expected to have been a drag on
growth for a ninth straight quarter.
In addition, slowing global demand, particularly weakness in
Europe and China, probably undercut U.S. exports. That likely
left a trade deficit that weighed on GDP growth.