WASHINGTON (AFP) - The US economy grew at a slower-than-expected 3.7 percent annual pace in the third quarter, the government said, unleashing a last-gasp scrap in the lock-tight race to the White House.
Economic growth sped up from a second-quarter pace of 3.3 percent but fell below Wall Street analysts` general forecasts for an expansion of about 4.3 percent.
So the news gave roughly equal dollops of comfort to President George W. Bush and his Democratic challenger John Kerry, each trying to elbow the other in the last four days to the November 4 vote.
Bush`s side boasted of solid activity, with consumer spending up 4.6 percent and business investment up 11.7 percent despite sizzling crude oil and gasoline prices.
"We are encouraged by the ongoing strong performance of the American economy, with a non-inflationary growth rate that is above the average for the past 10 years," Treasury Secretary John Snow said in a statement.
Kerry`s campaign decried a weaker-than-expected economy.
"In the last three months, the economic performance was disappointing for middle-class families and below expectations, the results that have become the norm for the economy under president Bush," said Kerry`s economic advisor, Gene Sperling.
The argument could be crucial, with polls consistently showing jobs and the economy among the biggest factors for voters.
"It`s neutral, it doesn`t change a lot for either candidate," said Moody`s Investors Service chief North American economist John Lonski.
"The economic situation is best characterized as one of sub-par job creation that helps Kerry and hurts Bush."
Bush accuses Kerry of being a tax-and-spend liberal. Kerry accuses Bush of favoring the rich with tax cuts and being the first leader since the Great Depression to record a net loss of jobs during his term.
Highlights of the latest report showed:
-- Consumer spending jumped 4.6 percent, recovering from a meagre 1.6 percent growth pace in the second quarter.
-- But imports, which detract from growth, leapt 7.7 percent, while exports rose 5.1 percent.
-- And businesses built up their stocks at a much slower pace, subtracting 0.48 percentage points from the growth pace.
-- The economic report also showed core inflation for prices paid by consumers collapsed to a 42-year low. The Federal Reserve`s favored inflation guide, the "personal consumption expenditure deflator" minus food and energy, crept up 0.7 percent in the quarter, the smallest gain since 1962.
Joel Naroff, president of Naroff Economic Advisors, said the performance was weaker than expected.
But "it is still a very good performance," he said.
"Consumers spent, businesses invested and exporters exported, meaning that the economy expanded solidly in the summer."
Adding to signs of industrial strength, a survey by the National Association of Purchasing Management, Chicago found business activity in the US Midwest accelerated in October as output zoomed to a 54-year high.
A business barometer compiled from a survey of purchasing managers in the Chicago area soared 6.6 points to a seasonally adjusted 68.5 points in October -- far beyond a market forecast for a reading of 59.1.
Most analysts see a deceleration ahead, however.
"We expect a significant slowdown in the fourth quarter and in 2005 due to the negative effect of higher oil prices, a less accommodative policy mix and a persistence of risk aversion from businesses," said CDC Ixis economist Marie Pierre Ripert.
Prospects for an economic slowdown, combined with meagre inflation figures, mean the central bank is unlikely to fear runaway prices even at current low interest rates.
That will feed market speculation of a pause in the Federal Reserve`s drive to gradually raise the key federal funds target interest rate, now just 1.75 percent.

10/29/2004 - 15:57 GMT - AFP