US econ­omy grew 3.2% in third quar­ter

Jamaica Gleaner - - BUSINESS -

THE UNITED States econ­omy in the third quar­ter grew at the fastest pace in two years, with a re­vised report show­ing stronger con­sumer spending than first es­ti­mated.

The gross do­mes­tic prod­uct, the coun­try’s to­tal out­put of goods and ser­vices, ex­panded at an an­nual rate of 3.2 per cent in the July-Septem­ber pe­riod, the Com­merce De­part­ment re­ported Tues­day. That is up from a pre­vi­ous es­ti­mate of 2.9 per cent.

The re­vi­sion was sig­nif­i­cantly bet­ter than the mea­gre gains of 0.8 per cent in the first quar­ter and 1.4 per cent in the sec­ond quar­ter when the econ­omy was being held back by a strong dol­lar and weak busi­ness in­vest­ment.

The 3.2 per cent in­crease was ex­pected to be the best show­ing for the year. Economists be­lieve growth has slowed to around 2 per cent in the cur­rent quar­ter. At the mo­ment, they fore­cast growth of around two per cent to 2.5 per cent for 2017.

But an­a­lysts cau­tion that the outlook for next year could shift sig­nif­i­cantly based on pol­icy changes — such as tax cuts and higher trade tar­iffs — that Pres­i­dent-elect Don­ald Trump has promised to im­ple­ment.

“Un­cer­tainty re­gard­ing our fore­casts is higher than usual, given ex­pected fis­cal and trade pol­icy changes un­der the new ad­min­is­tra­tion,” said Bar­clays econ­o­mist Ble­rina Uruci.

The lat­est look at GDP, the sec­ond of three es­ti­mates from the gov­ern­ment, showed that con­sumer spending grew at a 2.8 per cent rate in the third quar­ter, bet­ter than the 2.1 per cent ad­vance first es­ti­mated. The new-found strength re­flected more spending than ini­tially thought in such ar­eas as auto pur­chases and util­ity bills. Still, con­sumer spending, which ac­counts for 70 per cent of eco­nomic ac­tiv­ity, slowed from a gain of 4.3 per cent in the sec­ond quar­ter.


Other ar­eas of strength were in ex­port sales, which grew at a 10.1 per cent rate. Although the fig­ure par­tially re­flected a tem­po­rary surge in ex­ports of soy­beans, economists are hope­ful that ex­ports will show fur­ther gains in the months ahead. Ear­lier in the year, Amer­i­can man­u­fac­tur­ers were bat­tered by a strong dol­lar which made their goods more ex­pen­sive in over­seas mar­kets.

The 3.2 per cent GDP gain, the best show­ing since a 5 per cent ad­vance in the third quar­ter of 2014, is not ex­pected to last. An­a­lysts be­lieve growth will slow to a still-solid 2 per cent rate in the cur­rent quar­ter as a tem­po­rary boost from busi­ness re­stock­ing of store shelves fades. The swing in in­ven­to­ries added 0.5 per­cent­age point to growth in the third quar­ter, while the im­prove­ment in trade added 0.9 per­cent­age point.

For the year, the econ­omy is ex­pected to grow a modest 1.5 per cent, down from 2.6 per cent in 2015 — the best per­for­mance in the seven years since the Great Re­ces­sion ended in mid-2009.

While GDP growth is ex­pected to slow, an­a­lysts still ex­pect the Fed­eral Re­serve to boost a key in­ter­est rate at their meet­ing later this month. It would mark the first rate hike since the Fed boosted its bench­mark rate by a quar­ter-point a year ago.

Dur­ing the re­cent cam­paign, Trump de­cried what he saw as a slug­gish eco­nomic re­cov­ery un­der Obama, with GDP gains av­er­ag­ing around two per cent since the end of the re­ces­sion. Trump said he wanted to set a na­tional goal of reach­ing four per cent growth dur­ing his ad­min­is­tra­tion.

Most economists think that may be overly op­ti­mistic given the mass re­tire­ment of baby boomers, which would weaken growth in the labour mar­ket, and very tepid pro­duc­tiv­ity growth.

Some economists have said they will boost their GDP fore­casts if Trump is suc­cess­ful in get­ting Congress to pass his pack­age of tax cuts and in­creased spending in such ar­eas as de­fence and in­fra­struc­ture projects. But their cur­rent es­ti­mates put growth at around 2.5 per cent over the next two years, an im­prove­ment from their cur­rent fore­cast of growth next year of around two per cent, but well be­low Trump’s four per cent tar­get.

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