U.S. econ­omy grows 3.3 per cent in third quar­ter

The Globe and Mail (Atlantic Edition) - - INTERNATIONAL - LU­CIA MUTIKANI WASHINGTON

In­ven­tory in­vest­ment and in­creases in gov­ern­ment, con­sumer spend­ing help GDP ex­pand at fastest pace since 2014

The U.S. econ­omy grew faster than ini­tially thought in the third quar­ter, notch­ing its quick­est pace in three years, as in­creases in business in­vest­ment in in­ven­to­ries and equip­ment off­set a mod­er­a­tion in con­sumer spend­ing.

Gross do­mes­tic prod­uct ex­panded at a 3.3-per-cent an­nual rate in the third quar­ter, also boosted by a re­bound in gov­ern­ment spend­ing, the U.S. Com­merce Depart­ment said in its sec­ond es­ti­mate on Wed­nes­day. That was the fastest pace since the third quar­ter of 2014 and a pickup from the sec­ond quar­ter’s 3.1-per-cent rate.

The econ­omy was pre­vi­ously re­ported to have grown at a 3-per­cent pace in the July-Septem­ber pe­riod. It was the first time since 2014 that the econ­omy ex­pe­ri­enced growth of 3 per cent or more for two straight quar­ters.

The growth pace, how­ever, likely ex­ag­ger­ates the health of the econ­omy as in­ven­to­ries, goods yet to be sold, con­trib­uted 0.8 per­cent­age point to third-quar­ter GDP growth – up from the pre­vi­ously re­ported 0.73 per­cent­age points.

Ex­clud­ing in­ven­tory in­vest­ment, the econ­omy grew at a 2.5-per-cent rate. When mea­sured from the in­come side, out­put also ex­panded at a 2.5-per-cent rate. The gov­ern­ment said af­ter-tax cor­po­rate prof­its surged at a 5.8-per-cent rate in the pre­vi­ous quar­ter af­ter ris­ing at only a 0.1-per-cent pace in the sec­ond quar­ter.

Economists polled by Reuters had ex­pected that third-quar­ter GDP growth would be raised to a 3.2per-cent rate.

The eco­nomic re­cov­ery since the 2007-09 re­ces­sion is now in its eighth year and show­ing lit­tle signs of fa­tigue. The econ­omy is be­ing pow­ered by a tight­en­ing labour mar­ket, which has largely main­tained a strong per­for­mance that started dur­ing former pres­i­dent Barack Obama’s first term.

Economists see a mod­est boost to growth from ef­forts by U.S. Pres­i­dent Don­ald Trump and his fel­low Repub­li­cans in Congress to push through a broad pack­age of tax cuts, in­clud­ing slash­ing the cor­po­rate in­come tax rate to 20 per cent from 35 per cent.

Mr. Trump wants lower taxes to lift an­nual GDP growth to 3 per cent on a sus­tained ba­sis. The fis­cal stim­u­lus would, how­ever, come when the econ­omy is at full em­ploy­ment.

Busi­nesses ac­cu­mu­lated in­ven­to­ries at a $39-bil­lion (U.S.) pace in the third quar­ter, in­stead of the pre­vi­ously re­ported $35.8-bil­lion rate. That sug­gests in­ven­to­ries could be a drag on growth in the fourth quar­ter.

Data on Tues­day showed a drop in whole­sale and re­tail in­ven­to­ries in Oc­to­ber, lead­ing economists to slash their fourth-quar­ter GDP growth es­ti­mates.

Growth in con­sumer spend­ing, which ac­counts for more than twothirds of the U.S. econ­omy, was re­vised to a 2.3-per-cent rate in the third quar­ter from the pre­vi­ously re­ported 2.4-per-cent pace. Con­sumer spend­ing in­creased at a brisk 3.3-per-cent rate in the sec­ond quar­ter.

The de­cel­er­a­tion in con­sumer spend­ing likely re­flects the im­pact of Hur­ri­canes Har­vey and Irma, which struck Texas and Florida in early Au­gust and late Septem­ber. Spend­ing also is be­ing con­strained by slug­gish wage growth, which is forc­ing house­holds to dip into their sav­ings to fund pur­chases.

The sav­ing rate was low­ered to 3.3 per cent in the third quar­ter from the pre­vi­ously re­ported 3.4 per cent.

Growth in business in­vest­ment in equip­ment was raised to a 10.4-per­cent pace, the fastest growth pace in three years, from the pre­vi­ously re­ported 8.6-per-cent rate.

In­vest­ment in non­res­i­den­tial struc­tures fell at a 6.8-per-cent pace in the third quar­ter, the big­gest drop since the fourth quar­ter of 2015, in­stead of the pre­vi­ously es­ti­mated 5.2-per-cent rate.

Growth in gov­ern­ment spend­ing was raised to a 0.4-per-cent rate. Gov­ern­ment out­lays were pre­vi­ously re­ported to have de­clined at a 0.1-per-cent pace in the third quar­ter. Gov­ern­ment spend­ing had con­tracted for two con­sec­u­tive quar­ters.

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