Strong growth in US economy points to interest rate rises on the way
‘The economy is firing on all cylinders and that is before a likely tax cut down the road’
THE US economy grew at an annual rate of 3pc in the third quarter, overcoming fears that hurricanes Irene and Harvey would push its expansion down to a rate of 2.6pc.
The initial estimate of GDP – which in the US is measured as if it is a full-year figure, rather than a quarterly one as in the UK – is barely down from the 3.1pc rate recorded in the previous threemonth period.
Paul Diggle, senior economist at Aberdeen Standard Investments, said: “What this really tells us is that the US economy hardly skipped a beat after the recent hurricanes.” Other economic indicators he tracks have also “been suggesting that the economy is firing on all cylinders for some time now. And that’s before an increasingly likely tax cut that’s coming down the road.”
Consumer spending rose by 2.4pc while exports improved by 2.4pc. A decline in imports meant the net trade position added strongly to growth. Business equipment investment rose 8.6pc, though companies also added to their inventories, accounting for 0.7pc points in the growth figure.
Janet Yellen at the Federal Reserve is now considered almost certain to raise interest rates several times soon.
Ian Shepherdson at Pantheon Macroeconomics believes the surge in growth and jobs has further to run. He expects growth will stay at its 3pc in the fourth quarter, which “means payroll growth will rebound strongly, and the unemployment rate will keep falling; a sub-4pc rate is just a matter of months away”. He added: “Nothing drives Fed policy like the unemployment rate, which is why market expectations of just one further hike after December are unrealistic.”
Growth should accelerate next year, too, according to Paul Ashworth at Capital Economics. He said: “With domestic consumers unusually confident and global economic growth accelerating, US producers should be ramping up inventories, particularly after the pace of inventory accumulation slowed markedly over the past two years.”