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US economy picking up strength according to third quarter data

Thursday, December 26th 2013 - 05:52 UTC
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Personal consumption and business investment to be higher than previously thought, said US Department of Commerce Personal consumption and business investment to be higher than previously thought, said US Department of Commerce

The United States economy grew at a surprisingly robust 4.1% annual pace in the third quarter according to the Commerce Department, which was the strongest advance in nearly two years and only the third time the economy had expanded that quickly from one quarter to the next since 2006.

 It is the latest evidence that the generally sluggish US recovery is gaining strength, though economists noted that the rate of growth over a longer period remained at a trot, not a gallop — a pace of about 2.5% a year.

“We continue to believe that underlying growth will remain on a moderate trend,” said Joshua Shapiro, the chief United States economist at MFR, a consulting firm. “The outlook is greatly dependent on the direction of the labor market, and hence the path of wage and salary growth and the ability of consumers to expand spending.”

With stronger growth, the job market is improving, but earnings and employment remain far from healthy levels, economists say. The unemployment rate fell to 7% in November from 7.8% a year earlier. But that improvement is to a substantial extent because workers are leaving the labor force, not because of a greater number of jobs. At the same time, many working households continue to struggle because stagnant incomes have barely kept up with the modest pace of inflation.

Still eh US Commerce Department data raised the estimate of third-quarter growth from an earlier 3.6%, shows more evidence of broad-based growth that might lead to a healthier labor market and more solid growth in 2014.

The refined estimate is based on “more complete source data,” the department said, that showed personal consumption and business investment to be higher than previously thought. Economists had expected the final estimate of growth to be unchanged from the earlier 3.6%. But the data showed that consumers stepped up their spending on health care, houses and cars as the strengthening recovery led businesses to hire, and that rising home values had improved household balance sheets.

The Commerce Department increased its estimate of growth in consumer spending, which accounts for more than two-thirds of economic activity, to a 2% from 1.4%.

The third-quarter growth came from a broad range of sources: personal consumption, exports, investment in new factories and houses, state and local government spending and a rise in business inventories. Federal spending cuts and rising imports were a drag on growth, the department said.

Economists expect growth to retreat in the fourth quarter, in part because of the temporary government shutdown in October, but mostly because some of the upswing was driven by businesses building up their inventories. That activity is expected to slow the following months.

Next year, the end of extended unemployment insurance payments for the long-term jobless and cuts to the food stamps program will weigh on consumer spending and the overall recovery, but the scale of the drag should be much smaller.

“The economy is finishing 2013 in a stronger place than where it began the year,” said Jason Furman, the chairman of the White House’s Council of Economic Advisers.

Categories: Economy, Politics, United States.

Top Comments

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  • ChrisR

    Well, if true it's about time given the devaluation of the dollar and QE.

    BUT, will it be able to withstand the withdrawal of the “support”, that is the question?

    I do hope so but I seem to be in a minority given the panic response by many in the American finance “market”. These are the same people who claimed that QE was a waste of money (which it is).

    Dec 26th, 2013 - 12:49 pm 0
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