MercoPress. South Atlantic News Agency

US economy surprises with third quarter growth

United States economic growth was much stronger than expected during the third quarter reaching an annual rate of 4,3% pushed by a surge in consumer and business spending although corporate profits were down.

According to the latest report from the Commerce Department, the 4,3% growth of the July/September period was the best quarter since 2004. The main opposition parties pulled out of the poll on Tuesday accusing the Electoral Council of privileging pro government candidates.

In its first estimate the Commerce Department forecasted 3,8% and Wall Street 4%. There had been fears that the cost of rebuilding after hurricanes Katrina and Rita, coupled with record oil prices, would slam the brakes on growth.

Meanwhile, the core price index, which excludes food and energy costs, was up just 1.2%, its lowest in two years. This was revised down from the original 1.3%, and will ease inflation worries at the Federal Reserve.

The Fed has raised short-term interest rates a dozen times since mid-2004 to keep inflation under control.

Consumer spending advanced at a 4.2% rate, above the 3.9% rate first reported. However, core corporate profits after tax during the period fell 3.7%, the largest decline in four years, after a 5.3% rise in the previous quarter. The Commerce Department said profits were reduced by 151.2 billion at an annual rate because of Hurricanes Katrina and Rita. Insurance companies had to make large payouts in the wake of the storms, while uninsured corporate property was lost.

The upward revision of gross domestic product (GDP) was aided by higher spending on non-durable goods, in homes, on business equipment and on software, the Commerce Department said.

However it is thought that growth could slow in the fourth quarter as the housing sector softens, leading in turn to reduced consumer spending, given the latest report from the US Federal Reserve saying that in a number of districts a "slowing down or cooling" in real estate markets during November.

Actually separate figures from the Federal Reserve showed that US economic activity increased during November.

"Consumer prices remained stable or experienced generally modest increases" the Fed said in its latest 'beige book' report on US economic conditions. "Most districts reported increasing input prices, particularly of energy-related products, construction and raw materials, and transportation."