Recovery predicted to slow

WASHINGTON --- The unfolding economic recovery will probably lose some momentum in the final three months of the year as rising unemployment and still hard-to-get credit weigh on consumers.


The economy will grow at a pace of around 2.5 percent in the October-December quarter, according to projections made by analysts at Wells Fargo, IHS Global Insight and Moody's If accurate, that would mark a slowing from the projected growth of at least 3 percent that many economists think occurred in the third quarter.

The economy shrank at a rate of 0.7 percent in the April-June period, the Commerce Department said Wednesday.

"It's a recovery, but it is not a rapid recovery," said Nigel Gault, the chief U.S. economist at IHS Global Insight.

The third quarter's performance is expected to mark a turning point for the economy, providing the strongest signal yet that the worst recession since the 1930s is over.

Many economists say consumers likely came back to life in the third quarter, boosting spending at around a 2 percent pace. If they are right, it would be the strongest showing since the first quarter of 2007, before the recession started.

However, consumer spending in the fourth quarter could turn out to be flat or post an increase of no more than 1 percent, economists project. People will be wary of splurging, given shrinking wages and rising unemployment.

"We're fairly pessimistic about the holiday shopping season," said Mark Vitner, an economist at Wells Fargo Securities. "Wages and salaries are down, meaning people don't have the means to spend."

Wages in the second quarter fell 4.7 percent from the same quarter last year, the government said Wednesday.

Both businesses and consumers are still having trouble getting credit -- the oxygen of the economy, analysts said.

The government's first estimate of how the economy fared in the third quarter will be issued in late October. Fourth-quarter results won't be available until late January.

Because the recovery is expected to slow to a more plodding pace in coming months, the unemployment rate -- now at a 26-year high of 9.7 percent -- is expected top 10 percent this year. Economists predict it will be 9.8 percent for September when the government releases that report Friday.