US econ­omy grew at strong 3.5% in Q3

Kuwait Times - - BUSINESS -

The US econ­omy grew at a 3.5 per­cent an­nual rate in the July-Septem­ber quar­ter, the fastest pace in two years and more than the govern­ment had pre­vi­ously es­ti­mated. But the growth spurt isn’t ex­pected to last.

The gain in the gross do­mes­tic product - the econ­omy’s to­tal out­put of goods and ser­vices - came from added strength in con­sumer spend­ing, busi­ness in­vest­ment and the govern­ment sec­tor, the Com­merce Depart­ment said. The govern­ment had pre­vi­ously es­ti­mated last quar­ter’s an­nual growth rate at 3.2 per­cent. The GDP re­port “paints a pic­ture of a healthy con­sumer, likely fu­eled by on­go­ing gains in em­ploy­ment, mod­est in­creases in wages, and solid bal­ance sheets,” Michael Gapen of Bar­clays.

The econ­omy’s ac­cel­er­a­tion last quar­ter marked a sharp pickup from the tepid an­nual growth of 0.8 per­cent in the first quar­ter and 1.4 per­cent in the sec­ond. Still, growth is ex­pected to slow to a roughly 1.5 per­cent an­nual rate in the Oc­to­ber-De­cem­ber quar­ter, re­flect­ing in part less con­sumer spend­ing and less busi­ness stock­pil­ing.

Growth for the en­tire year, economists say, is likely to be around 1.5 per­cent. That would be down from 2015 and would be the weak­est per­for­mance since the econ­omy shrank 2.8 per­cent in 2009 at the depths of the worst eco­nomic down­turn since the 1930s. The re­cov­ery be­gan in mid-2009, but growth has av­er­aged just over 2 per­cent, the weak­est ex­pan­sion in the postWorld War II pe­riod.

Pres­i­dent-elect Don­ald Trump had crit­i­cized the slug­gish pace of growth dur­ing the cam­paign and said his eco­nomic poli­cies would ac­cel­er­ate an­nual GDP growth to 4 per­cent or bet­ter. To do that, Trump said he would elim­i­nate many govern­ment reg­u­la­tions, boost spend­ing on the na­tion’s ag­ing in­fra­struc­ture and slash taxes.

Most economists don’t think 4 per­cent growth is re­al­is­tic, given a chronic slow­down in worker pro­duc­tiv­ity and a slower-grow­ing US work­force due in part to re­tir­ing baby boomers.

Most fore­cast­ers ex­pect growth of around 2.5 per­cent next year, though they say those es­ti­mates could rise if Trump wins con­gres­sional sup­port for much of his eco­nomic pro­gram. Stock mar­kets have surged since Trump’s elec­tion, partly a re­flec­tion of op­ti­mism that his pro­pos­als would boost growth and cor­po­rate prof­its.

Thurs­day’s re­port was the govern­ment’s third and fi­nal es­ti­mate of GDP growth for the July-Septem­ber quar­ter. The up­ward re­vi­sion mainly re­flected stronger con­sumer spend­ing, which grew at a 3 per­cent an­nual rate, more than the 2.8 per­cent pace that was es­ti­mated a month ago. Con­sumer spend­ing is closely watched be­cause it ac­counts for about 70 per­cent of eco­nomic ac­tiv­ity.

The govern­ment also up­graded its es­ti­mate for busi­ness in­vest­ment: It showed an in­crease at a 1.4 per­cent an­nual rate, up from a much smaller 0.1 per­cent rate in the pre­vi­ous es­ti­mate.

Govern­ment spend­ing was also re­vised up to show growth at a 0.8 per­cent an­nual rate, an in­crease that re­flected a smaller drag from cut­backs at the state and lo­cal level.

The Fed­eral Reserve last week boosted a key in­ter­est rate by a quar­ter-point, just the sec­ond in­crease in the past decade. Fed of­fi­cials say they think they can be­gin to grad­u­ally raise in­ter­est rates as they near their goals for full em­ploy­ment, and in­fla­tion in­creases by about 2 per­cent a year.

In public com­ments last week, Chair Janet Yellen made no pre­dic­tions about Trump’s eco­nomic pro­gram. But Fed of­fi­cials fore­cast that they would raise rates three times in 2017, up from their pre­vi­ous fore­cast of two hikes. — AP

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