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Preliminary Q3 GPD grew by 3.1%

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Stock futures were lower before the release of the advance third- quarter GDP numbers, but have edged higher as the markets begin digesting information that showed the economy grew at a 3.1% annual rate, which was slightly below economists expectations.

Given The Conference Board's report on Tuesday that consumer confidence tumbled to a nine-year low in October were fearing the worst from upcoming data. However, GDP data covers the quarter ending September, with economists expecting growth of 3.6 percent.

The Commerce Department estimated that Gross Domestic Product (GDP) grew at a 3.1% annual rate in the 3rd quarter (July- September) after growing at 1.3 percent in the second quarter, the government said in its first of three estimates of U.S. economic growth.

If kept up at the same pace, GDP in current dollars would total $10.49 trillion for an entire year.

Final sales of domestic product rose 3.2 percent after falling 0.1 percent in the second quarter.

Auto sales - which represent about 4 percent of the economy - contributed slightly more than half of the increase in GDP. Auto output rose 42.2 percent.

Growth of around 3 percent is considered to be close to the U.S. economy's long-run potential. However, most economists fear that the economy is slowing in the current quarter, as the novelty of cheap auto loans wears off and businesses re-evaluate their expansion plans.

Expectations have been growing that the Federal Open Market Committee would cut its federal funds target rate at its meeting next Wednesday to stimulate the economy. The fed funds rate, which influences consumer and commercial lending rates, stands at a 41-year low of 1.75 percent.

In a separate report, the Labor Department said its four-week average of first-time jobless claims fell to 401,500, the lowest in two months, despite a rise in the latest weekly figures.

Meanwhile, continuing claims rose by 76,000 to 3.62 million.

Also, the Labor Department said employment costs rose 0.8 percent in the third quarter, with wages growing at the slowest pace since early 1999.

The Fed has no immediate inflation or deflation fears. The domestic purchases deflator rose at a 1.4 percent pace, while the personal consumption expenditure deflator rose at a 1.9 percent pace. The core rates - which exclude food and energy costs - also rose 1.4 percent and 1.9 percent.

In the third quarter, consumer spending rose at a 4.2 percent pace, more than double the 1.8 percent growth in the second quarter. Most of the increase went to auto dealers. Spending on durable goods rose 22.7 percent.

The personal savings rate fell to 3.7 percent of disposable income from 4 percent in the second quarter. Disposable incomes rose at a 2.7 percent pace.

Consumer spending contributed 2.95 percentage points of the total 3.1 percent growth.

Business spending on equipment and software picked up as well, adding 0.5 percentage points to growth. Investments in equipment and software rose at a 6.5 percent pace, the best in 10 quarters. Sales of computers rose at a 74.6 percent annual rate.

However, investments in nonresidential structures, such as offices and factories, fell at a 16 percent pace, the fourth straight quarter of double-digit declines.

All told, business investment on equipment and structures added 0.7 percentage points to growth, the first positive contribution from the business sector since the third quarter of 2000.

Despite very low mortgage rates, investments in residences fell 0.8 percent from a very high level.

Changes in inventories and the change in net exports had little impact on measured GDP for the quarter.

Companies added $1.9 billion to their inventories in the quarter, less than the $4.9 billion added in the second quarter. Inventories subtracted 0.1 percentage point from growth.

Exports rose 2.1 percent after growing 14.3 percent in the second quarter, reflecting a global deceleration in demand. Imports, meanwhile, rose 2.5 percent after gaining 22.2 percent in the second quarter. Net exports subtracted 0.1 percentage point from growth.

Government spending rose 1.8 percent. State and local government spending rose 1.2 percent after contracting 1.7 percent in the second quarter. Federal spending growth slowed, rising 2.9 percent after rising 7.5 percent in the second quarter. Defense spending rose 5.1 percent while non-defense spending fell 0.9 percent.

All of the above has S&P futures (sp02z) trading higher by 3 points at 892.70. NASDAQ futures (nd02z) are up 4.5 points and Dow futures (dj02z) are higher by 20 points at 8,430.

Fair value for the S&P 500 today is $0.26. That price will not change during the session. HL Camp & Company has their computers set for program buying at $1.52 and set for program selling at $-2.02. Fair value for the NASDAQ-100 today is $2.30.

Among early Dow movers, IBM (NYSE:IBM) fell 17 cents to $78.50, Citigroup (NYSE:C) inched 3 cents lower to $37.05, Microsoft (NASDAQ:MSFT) ticked a penny higher to $53.12 and Intel (NASDAQ:INTC) was unchanged at $16.99.

Among other movers in the early going, EDS (NYSE:EDS) jumped $1.10, or 8 percent, to $14.85 in Instinet after the information technology provider reported third quarter earnings that fell well-below year-earlier levels but exceeded consensus analyst forecasts. The company added that it planned to its workforce by up to 4 percent, or 5,700 positions.

On the downside, Albertson's (NYSE:ABS) fell $4.42, or 16 percent, to $23 in Instinet after the supermarket operator warned that fiscal third quarter earnings would fall short of prior forecasts.

Lucent Technologies (NYSE:LU) was Instinet's most-active stock with 204,500 shares having changed hands as of 8:00 a.m. ET. The stock dipped 2.5 percent to $1.17.

Endocare (NASDAQ:ENDO) tumbled $2.36, or 45 percent, to $2.84 after the diagnostic toolmaker said it would delay the release of third quarter earnings until it completes the review of its financial results.

Jeff Bailey

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