WASHINGTON: The US economy grew faster than initially thought in the third quarter, notching its quickest pace in three years, buoyed by robust business spending on equipment and an accumulation of inventories.
Gross domestic product expanded at a 3.3 per cent annual rate last quarter also boosted by a rebound in government investment, the Commerce Department said in its second GDP estimate on Wednesday. That was the fastest pace since the third quarter of 2014 and a pickup from the second quarter’s 3.1 per cent rate. The economy was previously reported to have grown at a 3.0 per cent pace in the July-September period. It was the first time since 2014 that the economy experienced growth of 3 per cent or more for two straight quarters.
The growth pace, however, likely exaggerates the health of the economy as inventories, goods yet to be sold, accounted for nearly a quarter of GDP growth. Excluding inventory investment, the economy grew at a 2.5 per cent rate. When measured from the income side, output also expanded at a 2.5 per cent rate.
“While welcomed improvement, the sustainability of growth has been reliant on pent-up demand and stockpiling of goods after grossly depleting inventories,” said Lindsey Piegza, chief economist at Stifel Fixed Income in Chicago. Economists had expected that third-quarter GDP growth would be raised to a 3.2 per cent rate. The brisk growth pace strengthens the case for the Federal Reserve to raise interest rates next month. The US central bank has increased borrowing costs twice this year.
Fed Chair Janet Yellen told lawmakers on Wednesday “the economic expansion is increasingly broad based across sectors,” and that she expected that “the economy will continue to expand.”
Prices for US Treasuries fell on the data and Yellen’s remarks. The dollar was little changed against a basket of currencies, while stocks were mixed.
The economic recovery since the 2007-2009 recession is now in its eighth year and showing little signs of fatigue. The economy is being powered by a tightening labour market, which has largely maintained a strong performance that started during former President Barack Obama’s first term.
CORPORATE PROFITS RISE: The government said after-tax corporate profits surged at a 5.8 per cent rate last quarter after rising at only a 0.1 per cent pace in the second quarter. Undistributed profits jumped at a 13.9 per cent rate after declining for two straight quarters, suggesting that companies were anticipating deep tax cuts.
Businesses accumulated inventories at a $39.0 billion pace in the third quarter, instead of the previously reported $35.8 billion rate. As a result, inventory investment contributed 0.8 percentage point to third-quarter GDP growth, up from the previously reported 0.73 percentage point.
That suggests inventories could be a drag on growth in the fourth quarter. Data on Tuesday showed a drop in wholesale and retail inventories in October, leading economists to slash their fourth-quarter GDP growth estimates by as much as five-tenths of a percentage point to as low as a 2.3 per cent rate. — Reuters
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