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US Economic Growth Improves To 2 Pct. Rate In Q3

The economy's health is most closely tied to consumers, whose spending drives 70 percent of economic activity.

The latest report showed some progress.

Consumer spending rose at an annual rate of 2 percent in the July-September quarter, up from 1.5 percent in the previous quarter. And a survey by the University of Michigan released Friday found consumer confidence increased to its highest level in five years this month. That suggests spending may keep growing.

Americans spent more on cars, adding nearly 0.2 percentage point to growth. Housing added to growth for the sixth straight quarter.

"Those are the sectors that reflect growing consumer confidence and greater lending," said Joseph Carson, U.S. economist for AllianceBernstein, an asset management firm.

Still, more jobs and better pay are needed to sustain that growth, he added. After-tax, inflation-adjusted income rose at only a 0.8 percent annual rate in the third quarter. That was down from a 3.1 percent rate in the previous quarter.

Income includes not only wages but also dividends, rental income and government or workplace benefits, among other items.

With businesses nervous about the economic outlook, hiring isn't likely to pick up soon.

Many companies worry that their overseas sales could decline further if recession spreads throughout Europe and growth slows further in China, India and other developing countries. Businesses also fear the tax increases and government spending cuts that will kick in next year if Congress doesn't reach a budget deal.

That's caused them to invest less in new buildings and equipment. Business spending on equipment and software was flat in the July-September quarter, the first quarter it didn't increase since the recession.

"Uncertainty at home and abroad is holding back the business sector," Nigel Gault, an economist at IHS Global Insight, said in an email. "How quickly those uncertainties clear up ... will determine how quickly the overall growth rate can pick up."

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