US GDP growth slows to 1.5% in Q3
Jobless claims little changed last week
WASHINGTON: The US economy expanded at a slower pace in the third quarter as companies took advantage of gains in consumer and business spending to reduce bloated stockpiles.
Gross domestic product grew at a 1.5% annual rate, in line with the 1.6% median forecast of economists surveyed by Bloomberg, Commerce Department data showed yesterday.
Excluding the biggest swing in inventories in four years, the pace of growth was 3% compared with 3.9% in the previous three months.
Household purchases, buoyed by job and income gains, will probably continue to underpin the world’s largest economy even as weaker demand from overseas customers holds back exports and manufacturing.
The quick rebalancing of stockpiles to be more in line with domestic demand heading into the holiday season indicates factory production will soon stabilise, eliminating a source of weakness.
“This number is stronger than it looks,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc in Pittsburgh, said before the report. “Fourth-quarter economic growth should be faster on the basis of a still-good holiday season, good housing, good consumer spending.”
The median forecast for GDP, the value of all goods and services produced, was based on a survey of 80 economists. Projections ranged from gains of 0.9% to 2.4%.
The estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.
The economy grew at an average 2.3% pace in the first half of the year as a 3.9% surge in the second quarter more than made up for a first-quarter slowdown caused by frigid weather, a labour dispute at West Coast ports and cutbacks in the energy industry. GDP expanded 2.4% in all of 2014.
A separate report from the Labour Department yesterday showed the number of applications for unemployment benefits were little changed last week, hovering near the lowest levels in four decades.
Jobless claims rose just 1,000 to a seasonally adjusted 260,000, a very low level historically that suggests employers are cutting few jobs.
The four-week average, a less volatile measure, dropped 4,000 to 259,250. That is the fewest since December 1973.
The figures indicate that businesses remain confident enough in the economy to hold onto their workers.
Hiring is typically healthy when applications are low. Many economists expect job gains to rebound after slowing in August and September.
The number of people receiving benefits also slipped, to 2.14 million, from 2.18 million in the previous week.
The third-quarter growth estimate showed household purchases, which account for almost 70% of the economy, rose at a 3.2% annual pace compared with a 3.6% pace in the prior three-month period. Personal consumption added 2.2 percentage points to growth.
After-tax incomes adjusted for inflation climbed at a 3.5% annual rate, almost three times the 1.2% gain in the prior three months. That allowed the saving rate to increase to 4.7% from 4.6%, indicating consumers have plenty of firepower to continue to drive growth.
Stable job growth in 2015 and cheaper prices at the pump have helped cushion Americans’ pocketbooks, supporting the household spending that makes up the biggest share of US growth.
While payrolls advanced at a slower pace than forecast in August and September, the pace of hiring this year has averaged 198,000 a month, beating the annual average for seven of the 10 years through 2014.
Gasoline costs have been receding for the past two months. The average price of a gallon of regular gasoline fell to $2.20 on Oct 27, the lowest since February, according to auto group AAA. That compares with a daily average of $3.34 in 2014.
A smaller gain in inventories subtracted 1.4 percentage points from growth, the biggest drag since the last three months of 2012, the Commerce Department’s report showed.
The $59.8 billion slowdown at an annual pace from the prior quarter was the biggest since the third quarter of 2011.
“The story on inventories is that it’s a big adjustment that occurred quickly, and should be far less of a drag” in the next few quarters, PNC Financial Services Group’s Hoffman said.
WASHINGTON: The US Federal Reserve kept interest rates unchanged on Wednesday and in a direct reference to its next policy meeting put a December rate hike firmly in play.
Investors had expected the Fed to remain pat on rates, but the overt reference to December came as a surprise.
The Fed has kept the target for its benchmark funds rate at a record low in a range of 0-0.25% since December 2008.
The central bank also downplayed recent global financial market turmoil and said the US labour market was still healing despite a slower pace of job growth.
“In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress — both realised and expected — toward its objectives of maximum employment and 2% inflation,” the Fed said in a statement after its latest two-day policy meeting.
Investors quickly placed bets reflecting a higher chance the US central bank will raise rates in December, with futures contracts implying a 43% possibility compared to 34% prior to the statement.
“The Fed is seriously considering a December rate hike,” said Harm Bandholz, an economist at UniCredit in New York.
Going into the Fed meeting this week, the market had viewed March as the most likely time for the central bank to begin its rates “liftoff,” but it now sees a greater chance of that happening in late January.
Michael Feroli, a former Fed economist now at JPMorgan Chase & Co, said the Fed statement was the first since 1999 in which policymakers pointed to a possible rate increase at the next meeting.
“By specifically referring to that meeting they are basically testing the waters a bit,” said Aneta Markowska, an economist at Societe Generale in New York.
She described it as a “subtle attempt” to gently nudge the market in that direction.
The Fed has been struggling to convince investors a rate hike was imminent in the wake of data this month that showed US employers slammed the brakes on hiring in August and September.
But it countered the scepticism on Wednesday by saying even slower hiring was still enough to get it closer to its goal of maximum employment.
Central bank policymakers also pointed to “solid rates” of growth in consumer spending and business investment, while eliminating a reference from their previous statement warning a global economic slowdown could sap US economic strength.
Fed chairwoman Janet Yellen has been saying for much of this year that a rate hike would likely be needed in 2015 to keep the economy from eventually overheating.
More recently two Fed governors urged caution over rate hikes while questioning Yellen’s views on inflation, though such doubts appeared muted in Wednesday’s statement.
The Fed now has several important economic readings to parse, including two monthly employment reports, before it makes up its mind on whether to tighten policy at its Dec 15-16 meeting.
It will also get a chance to see how monetary policy easing in Europe, Japan and China plays out in financial markets. Easy money policies abroad push the dollar higher, hurting US exporters and making it harder for the Fed to get inflation back up to its 2% target.
That may explain why the Fed sought to leave the door open for a rate hike rather than paint the economy as fully ready for a monetary policy tightening.
“The Fed has dialed down its anxiety over international developments, but it’s best to play it safe,” said Brian Jacobsen, a portfolio strategist at Wells Fargo Funds Management.