US economic growth spurted ahead during the third quarter, powered by brisk consumer spending, the government said, but analysts warned slowing car sales have already sapped much of the momentum.
Gross domestic product, which measures the total value of goods and services produced within US borders, advanced at a 3.1 per cent annual rate in the three months from July to September, rebounding smartly from the anaemic 1.3 per cent pace of the second quarter.
Analysts said the Commerce Department report, while showing the economy still was growing, highlighted the uneven pace of recovery from last year's recession and left a clear path for further cuts in US interest rates as a stimulus.
The US Federal Reserve's policysetting Federal Open Market Committee meets on Wednesday to consider interest-rate strategy but has not sent a clear signal about its intentions.
The central bank has kept rates steady so far this year after cutting its federal funds rate to a four-decade low 1.75 per cent in 11 stages last year.
Commerce acknowledged much of the third-quarter growth came from brisk spending on new cars and trucks, as automakers offered a variety of incentives, including free financing, to lure buyers into showrooms.
But sales slowed in October and may be harder to revive in the coming months - as key reason analysts now see fourth-quarter GDP growth braking to a rate around one per cent to two per cent.
"The economy is losing steam," economist Sung Won Sohn of Wells Fargo Bank in Minneapolis said. "The zero-per cent financing is like antibiotics; the market needs a stronger and bigger fix to maintain the current level of sales."
Sohn said he was looking for a further cut in US interest rates, considering that GDP will likely grow at no more than a one per cent rate in the fourth quarter.
President George W. Bush, speaking in Aberdeen, South Dakota, ahead of tomorrow's congressional elections, tried to pump up confidence in the economy's future while Democrats, seeking an edge in this week's voting, warned of weakness.
"We got some good news today. The third-quarter growth was positive. And that's good," Bush told a political rally. "We're kind of moving our way towards a time when people can find work, but there's more to do."
But Charles Rangel of New York, the ranking Democrat on the House Ways and Means Committee, said he feared "millions of workers will continue to be unemployed and many will lose their unemployment compensation benefits" ahead. He urged action to extend the eligibility period for collecting unemployment.
Commerce Secretary Don Evans said in an interview with Reuters that a number of influences were depressing consumers' spirits, from anger over corporate accounting scandals to worry about the impact of possible war with Iraq.
"You've got concerns of a war, people are a little uncertain about that and what that means, and so it's caused them to be a little anxious," Evans said, referring to figures published last week that showed US consumer confidence slumped to a nine-year low in October.
Separately, a labour department report showed initial claims for unemployment benefits jumped by 16,000 to 410,000 in the week ended October 26 pointed to a weakened job market.
And in a third report, the department said its employment cost index - measuring what employers pay in wages, salaries and benefits - rose at a 0.8 per cent rate during the third quarter, slowing from 1.0 per cent in the second quarter.
The GDP report showed consumer spending grew at a 4.2 per cent annual rate in the third quarter, up from a 1.8 per cent rate of gain in the second quarter, and was the key influence on the improved quarterly GDP performance.
The weak job market and worry about possible war with Iraq have helped dim consumer confidence and raised the likelihood of slower growth ahead, since analysts say consumers will be less willing or able to keep spending at lofty levels.
"Today's report shows that while the recovery is now a year old, a broad and strong rebound has not yet developed, largely because uncertainty has clouded improvements in the fundamentals," said Jerry Jasinowski, president of the National Association of Manufacturers.
"As auto sales taper off, I expect overall growth to come in at about two per cent in the fourth quarter," he added.
That prospect was bolstered by a survey issued by the National Association for Business Economics, which said the 108 businesses it polled did not expect to boost hiring in coming months, and many were cutting their spending plans.
Nabe's president, Tim O'Neill, said it was not an entirely bleak view of the future but it indicated caution. "There is a somewhat more pessimistic view about where the economy is going in the near-term, but there's no sense of panic," he said.
At the White House, chief economic adviser Glenn Hubbard told Reuters in an interview that GDP growth would be "substantially slower" in the fourth quarter and said Europe and Japan should do more to spur their economies.
Economist Ken Mayland of Clearview Economics LLC in Pepper Pike, Ohio, noted the economy has advanced for four straight quarters in a difficult environment, but similarly noted the United States was the only major region posting growth.
"The U.S. economy cannot single-handedly keep the world economy going," Mayland said, "Our policymakers need to 'get on the case' of other industrial countries to get them to live up to their potentials and responsibilities."
There were some signs in the third-quarter GDP report that suggested businesses might be starting to modestly raise investment spending - something economists say is vital to keep some economic momentum going.
Nonresidential private investment - spending on factories and equipment - edged ahead for the first time in two years. Within that category, spending on equipment and software increased for a second straight quarter during July-September, rising at its fastest pace since the second quarter of 2000.