US economy grows at fastest pace in more than two years

WASHINGTON: The US economy grew at its fastest pace in more than two years in the third quarter, powered by robust business spending, and is poised for what could be a modest lift next year from sweeping tax cuts passed by Congress this week.

While other data on Thursday showed a jump in the number of Americans filing for unemployment benefits last week, the underlying trend in jobless claims remained consistent with a tightening labour market. The strong economy and tight jobs market has led many analysts to question the need for the $1.5 trillion tax cut package.

Gross domestic product expanded at a 3.2 per cent annualised rate last quarter, the Commerce Department said in its third GDP estimate for the period. Although that was slightly down from the 3.3 per cent reported last month, it was the quickest pace since the first quarter of 2015 and was a pickup from the second quarter’s 3.1 per cent growth rate.

It also was the first time since 2014 that the economy enjoyed growth of 3 per cent or more for two straight quarters. Retail sales, labour market and housing data as well as other reports have suggested the economy maintained its solid momentum in the fourth quarter.

NEAR FULL EMPLOYMENT: The growth in the third quarter, however, likely overstated the economy’s health. An alternate measure of growth, gross domestic income, rose at a 2.0 per cent rate in the period. GDI was previously reported to have increased at a 2.5 per cent rate.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.6 per cent rate in the third quarter instead of the previously reported 2.9 per cent.

The pace of growth in business investment in equipment was raised to 10.8 per cent, the fastest in three years, from the previously reported 10.4 per cent. There were also upward revisions to government spending and residential construction.

In a separate report, the Labor Department said initial claims for state unemployment benefits rose 20,000 to a seasonally adjusted 245,000 for the week ended December 16.

Last week marked the 146th straight week that claims remained below the 300,000 threshold, which is associated with a strong labour market. That is the longest such stretch since 1970, when the labour market was smaller. — Reuters