Many companies worry that their overseas sales could decline further if recession spreads throughout Europe and growth slows in China, India and other developing countries. Businesses also fear the tax increases and government spending cuts that will kick in next year if Congress doesn't reach a budget deal.
That's caused them to invest less in new buildings and equipment. Business spending on equipment and software was flat in the July-September quarter, the first quarter it didn't increase since the recession.
"Uncertainty at home and abroad is holding back the business sector," Nigel Gault, an economist at IHS Global Insight, said in an email. "How quickly those uncertainties clear up <t40>...<t$> will determine how quickly the overall growth rate can pick up."
One big driver of growth was a sharp increase in defense spending, which rose by the most in more than three years. That was likely a one-time boost.
Growth was held back by the first drop in exports in more than three years. It was also slowed by the effects of the drought that struck the Midwest last summer. The drought cut agriculture stockpiles and reduced the economy's annual growth rate by nearly a half-point.
In a healthy economy, growth between 2.5 percent and 3 percent is usually sufficient to keep the unemployment rate low. But the unemployment rate is 7.8 percent. Growth needs to top 3 percent to generate enough hiring to lower the rate steadily.
The government's report covers gross domestic product, which measures the nation's total output of goods and services -- from restaurant meals and haircuts to airplanes, appliances and highways. Friday's was the first of three estimates of third-quarter GDP.
Analysts were doubtful that the report would sway many undecided voters in battleground states.
Since the recovery began more than three years ago, the U.S. economy has grown at the slowest rate of any recovery in the post-World War II period. And economists think growth will remain sluggish at least through the first half of 2013.
Some analysts believe the economy will start to pick up in the second half of next year.
By then, economists hope the tax and spending confrontations that have brought gridlock to Washington will be resolved. That could encourage businesses to invest and hire.
The Federal Reserve's continued efforts to boost the economy by lowering long-term interest rates may also help by generating more borrowing and spending by consumers and businesses.
But the economy is still being slowed by consumers' efforts to spend less, increase their savings and pay off debts, economists say. And banks remain cautious about lending in the aftermath of the financial crisis. That's why recoveries after financial crises are usually weak.
"There's just a reality here," said Paul Edelstein, an economist at IHS Global Insight. "You don't recover from these types of events as quickly as you'd like."