Small bump expected in economic growth in Q3

[November 23, 2010]  WASHINGTON (AP) -- The economy probably grew slightly faster last summer than first thought, benefiting from stronger overseas sales of U.S. goods. Still, it's not likely to be enough to bring relief to millions of unemployed Americans.

Analysts predict the economy expanded at an annual rate of 2.3 percent in the July-September quarter. Stronger U.S. exports and greater spending by businesses to replenish their stockpiles are the reasons they are expecting an upward revision from the government's initial estimate of 2 percent.

The Commerce Department's second estimate for third-quarter growth will be reported on Tuesday, the same day the Fed is scheduled to release minutes of its closed-door deliberations on Nov. 3 and updated economic projections. Those minutes could reveal greater tension over policymakers' decision to buy $600 billion worth of government bonds.

"That debate was likely spirited," said Michael Feroli, economist JPMorgan Chase Bank, about the bond-purchase program that has since sparked criticism inside the Fed, on Capitol Hill and internationally.

The effort is aimed at getting Americans to spend more by making loans cheaper and by boosting stock prices. But no one -- including Fed Chairman Ben Bernanke -- thinks the program would create the robust growth needed to make a big dent in the unemployment rate.

Even with the anticipated upward revision, economic growth would need to grow twice as fast to have any real impact. Under one rule of thumb, the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point.

But for all of this year, the economy is expected to expand 2.6 percent. Leading economists polled in a recent AP Economy Survey predict the economy will expand at a 2.4 percent pace in the October-December period. Growth would only be a tad better -- logging a 2.5 percent -- in the first three months of 2011, according to the AP survey.

"It's kind of the same slow-growth story into next year," said Brian Bethune, economist at IHS Global Insight. "The economy is out of the intensive care unit, but it still isn't strong."

The Fed is expected to project the economy growing at a slower pace this year, unemployment to be higher and inflation to be running at lower levels, analysts said. The likely downgrades to growth and employment explain why the Fed decided to jump back in with a second round of stimulus. Bernanke didn't think the Fed could afford sitting back and not trying to do something to help rev up growth.

Still, China, Brazil, Germany and other countries are irked by the move, complaining that is a scheme to further drive down the value of the U.S. dollar, giving U.S. exporters a competitive advantage over their foreign rivals. And Republican economists and lawmakers have criticized the move, saying it could lead to runaway inflation.

Bernanke has vigorously rejected such criticism.

The minutes of the Fed's November meeting could provide insights into the thinking of Fed officials as their weighed the benefits and risks of launching the new program.

The action drew only one dissent -- from Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, who feared the program would spur inflation and a wave of speculative buying on Wall Street. However, the minutes could reveal a deeper uneasiness among Fed officials over the program.

Fed Governor Kevin Warsh, for instance, indicated in a recent speech that he had reservations about the program, even though he voted for it. Warsh has warned of significant risks, including the potential for triggering excessive inflation. The Fed might have to reconsider its program if the dollar continued to fall or if commodity prices continued to rise, raising inflation across the economy, he said.

The Fed has said it will regularly review the bond-buying program and has left the door open to scaling it back if the economy performs better than expected. It could also buy more bonds if the economy weakens. Economist Chris Rupkey at Bank of Tokyo-Mitsubishi doesn't think the Fed will buy the entire $600 billion. He thinks the economy will fare better than anticipated next year.

[Associated Press; By JEANNINE AVERSA]

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