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Hope for Obama as American economy picks up

THE US economy picked up in the third quarter of 2012, growing on an annualised basis by 2%, but the rise will do little to dent unemployment in America and Barack Obama will be hoping for a boost in non-farm payroll numbers next week to give his bid to stay in the White House a late lift ahead of polling day on November 6.

While the July to September growth figure is up on that for the previous quarter of 1.3%, it falls short of the 2.5% needed over several quarters to cut the jobless rate, which currently stands at 7.8% or 23 million people.

Nonetheless, the increase was better than many analysts had predicted and was down to higher consumer spending on items such as cars and electronic goods as well as a surge in US Government defence spending together with a spike in house building, up 14% thanks to record low mortgage rates.

Since climbing out of the 2007-09 recession, the US economy has faced a series of issues from high petrol prices to the eurozone crisis and, lately, fears about austerity cuts.

The American economy has struggled to exceed a 2% growth rate and remains about 4.5 million jobs short of where it stood when the downturn started.

In the third quarter, consumers shrugged off the prospect of sharp cuts in government spending and higher taxes due next year – the so-called fiscal cliff – and went on a bit of a shopping spree.

Consumer spending accounts for 70% of US economic activity and grew by 2% after increasing by 1.5% in the previous quarter.

A second report showed consumer sentiment had reached its highest point in five years, another sign households are little worried by the fiscal cliff, which is set to drain £400 billion from the economy in 2013 unless Congress acts.

On a quarter by quarter basis, the latest US figure means the American economy grew by just 0.5% between July and September compared to the UK, which grew by 1%.

At home, No 10 continued to take a cautious line on Britain's third-quarter GDP figure, which showed the recession was finally over. A UK Government source made clear the Treasury was not expecting a repeat of growth on the same scale in the next quarter.

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