US econ­omy grew at its strong­est pace in 2 years

Kuwait Times - - BUSINESS -

Don’t ex­pect much more from the US econ­omy this year - it may have al­ready peaked. Gross do­mes­tic prod­uct, the broad­est mea­sure of eco­nomic health, grew at an­nual rate of 2.9 per­cent in the July-Septem­ber quar­ter, shak­ing off a lack­lus­ter first half and ac­cel­er­at­ing to its strong­est growth in two years, the Com­merce Depart­ment re­ported Fri­day. The im­prove­ment was pow­ered by a re­bound in ex­ports and a de­ci­sion by busi­nesses to re­stock their shelves.

The lat­est fig­ure was dou­ble the 1.4 per­cent rate in the sec­ond quar­ter. The details, how­ever, point to signs that the pace is un­likely to last. The rise in ex­ports was fu­eled by a surge in ship­ments of soy­beans to South Amer­ica. That’s prob­a­bly not go­ing to hap­pen again. The strength in in­ven­tory re­build­ing also looks to fade in com­ing quar­ters.

More­over, con­sumer spend­ing growth slowed from a break­neck pace in the sec­ond quar­ter. Busi­ness in­vest­ment was barely pos­i­tive, still try­ing to re­cover from sharp cut­backs in the en­ergy in­dus­try af­ter oil prices plunged. Home con­struc­tion also con­tracted for a sec­ond quar­ter, although econ­o­mists be­lieve that set­back will be tem­po­rary. Gre­gory Daco, head of US Macroe­co­nomics at Ox­ford Eco­nom­ics, said the third-quar­ter re­sults “may be as good as it gets in 2016.” He fore­casts slower growth of around 2 per­cent in the cur­rent Oc­to­berDe­cem­ber pe­riod.

“Go­ing for­ward, we ex­pect a mod­est ex­pan­sion in eco­nomic ac­tiv­ity, but we note the econ­omy may be in a frag­ile equilib­rium,” Daco wrote in a re­search note.

Still, the bet­ter-than-ex­pected GDP read­ing for the third quar­ter keeps the Fed­eral Re­serve on track to boost in­ter­est rates next month. Econ­o­mists be­lieve a rate hike at next week’s meet­ing is un­likely so close to the US pres­i­den­tial elec­tion.

Paul Ash­worth, chief US econ­o­mist at Cap­i­tal Eco­nom­ics, said that the re­port “con­firms that the eco­nomic re­cov­ery has re­gained some of the mo­men­tum lost within the last year.” The Com­merce Depart­ment re­port was the govern­ment’s first look at third-quar­ter GDP. It will be sub­ject to two re­vi­sions over the next two months. It rep­re­sents one of the last ma­jor eco­nomic re­ports to be is­sued be­fore Amer­i­can vot­ers go to the polls on Nov 8.

Democrats hailed the GDP re­bound af­ter three straight quar­ters of ane­mic growth av­er­ag­ing around 1 per­cent. But Repub­li­cans said the new fig­ure did not change their view that the coun­try’s cur­rent poli­cies need to be changed. “Growth hasn’t risen above 3 per­cent for a full year in any year of the Obama pres­i­dency,” said Dan Kowal­ski, deputy pol­icy di­rec­tor for the Trump cam­paign. “The sin­gle most im­por­tant is­sue fac­ing the Amer­i­can peo­ple is an econ­omy that has failed to de­liver jobs, in­comes and op­por­tu­nity.”

GDP growth slumped into a pro­nounced slow­down late last year. Ex­porters were con­strained by a ris­ing dol­lar, which made their prod­ucts more ex­pen­sive on over­seas mar­kets. Busi­nesses cut back on boost­ing in­ven­to­ries in the face of weaker sales. Given the dis­ap­point­ing first half, econ­o­mists be­lieve growth for the en­tire year will be a mod­est 1.6 per­cent.

The econ­omy grew 2.6 per­cent for all of 2015. This re­cov­ery from the deep 20072009 re­ces­sion has been the weak­est in the post-World War II pe­riod, with growth av­er­ag­ing around just 2 per­cent over the past seven years.

The GDP growth rate in the third quar­ter was the econ­omy’s best show­ing since it ex­panded at a 5 per­cent rate in the third quar­ter of 2014. In the fi­nal three months of last year, growth slowed to a 0.9 per­cent rate, fol­lowed by weak gains of 0.8 per­cent in the first quar­ter this year and 1.4 per­cent in the sec­ond quar­ter. — AP

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