Growth even weaker than feared

@CNNMoney December 22, 2011: 10:40 AM ET

NEW YORK (CNNMoney) -- The U.S. economy was weaker than previously thought in the third quarter, according to a government report, although economists are expecting stronger growth in the final three months of the year.

Gross domestic product, the broadest measure of the nation's economic health, grew at a 1.8% annual rate in the quarter. That's down from the previous estimate of 2% growth.

Growth less than 2% is considered so weak that it can essentially feel like a recession, leaving consumers and businesses worried about spending and the economy at risk of actually falling into a new downturn should there be a financial shock, like the European debt crisis.

Typically growth of 3% is considered enough to prompt hiring by employers that would significantly lower the nation's persistently high unemployment rate.

Fed outlook still mixed

Still, since the end of the summer fears that the U.S. economy could stumble into a new recession have started to retreat, as consumer spending and hiring have showed unexpected strength.

Economists surveyed by CNNMoney forecast that growth rebounded to 3.5% in the soon-to-be-completed fourth quarter, although most are looking for another slowdown in the beginning of 2012.

The economists have also cut their odds of a new recession in the next six months down to 15%, from a 25% chance only three months ago.

The downward revision for the third quarter GDP was mostly due to a weaker reading for personal consumption, a measure of consumer spending. That grew at only 1.7%, down from the previous estimate of 2.3% growth. Lower spending on services was the main cause of the decline.

"The softer pace of consumer spending sets a less positive backdrop for growth in the fourth quarter," said Peter Newland, an economist with Barclays Capital in a note to clients Thursday.

But Joseph LaVorgna, chief U.S. economist for Deutsche Bank, said that while the drop in consumer spending on services lowered overall growth, a number of other components of the report were revised slightly higher. He said nothing in the report has changed his firm's outlook for much stronger fourth quarter growth.

Weak economic growth is one reason that the Obama administration and many in Congress say they need to pass an extension of the payroll tax holiday, as well as extended unemployment benefits. However, a political deadlock has blocked the measure from passing despite bipartisan support in concept. To top of page

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