US sees economy growing slightly to 2.1% in Q3
WASHINGTON (Reuters) – US economic growth picked up slightly in the third quarter, rather than slowing as initially reported, and there are signs the downturn in business investment may be drawing to a close.
The modest firming in growth reported on Wednesday by the government came alongside data showing the number of Americans filing claims for unemployment benefits dropped last week after standing at a five-month high for two straight weeks.
Labor market strength should continue to support consumer spending, which appears to be slowing.
Collectively those reports and others are painting a more upbeat picture of an American economy, now in a record 11th year of expansion, that has had to overcome speed bumps from President Donald Trump’s trade war with China and the ebbing tailwinds from last year’s Republican tax cuts.
Economists boosted their estimates for growth in the current quarter as well. The upswing in the data would appear to validate the optimistic tone struck earlier this week by Federal Reserve Chair Jerome Powell, who said “at this point in the long expansion, I see the glass as much more than half full.”
The US central bank last month cut interest rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.
The Fed on Wednesday described the economy as growing “modestly from October through mid-November.”
“Fourth-quarter growth is looking better,” said Michael Feroli, an economist at JPMorgan in New York.
Gross domestic product increased at a 2.1 percent annualized rate, the Commerce Department said in its second estimate of third-quarter GDP. That was up from the 1.9 percent pace it estimated last month. The economy grew at a two percent pace in the April-June period. Economists polled by Reuters had forecast third-quarter GDP growth would be unrevised at 1.9 percent.
The upward revision to GDP reflected more inventory accumulation than initially thought. Inventories rose at a $79.8 billion pace instead of the $69.0 billion rate reported last month. The inventory build, which economists attributed to the waxing and waning trade tensions between the United States and China, contributed to growth instead of being a drag.
Even discounting the inventory lift, the economy was healthy last quarter.
When measured from the income side, the economy grew at a 2.4 percent rate in the last quarter. Gross domestic income (GDI) increased at a rate of 0.9 percent in the second quarter. The income side of the growth ledger accelerated despite a drop in profits.
Second-quarter GDI growth was revised down by 0.9 percentage point, with growth in wages and sales during that period slashed by $46.7 billion to $62.1 billion.
After-tax profits without inventory valuation and capital consumption adjustment, which corresponds to S&P 500 profits, decreased $11.3 billion, or at a rate of 0.6 percent, as they were held down by legal settlements with Facebook and Google. Profits increased at a 3.3 percent rate in the second quarter.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.3 percent rate in the July-September period, quickening from a 1.4 percent growth pace in the second quarter.
The Atlanta Fed raised its fourth-quarter GDP growth estimate to a 1.7 percent rate from only a 0.4 percent pace.
Despite the upbeat growth data, inflation remains muted, which could trouble some Fed officials.