Real growth in the U.S. economy was revised upward in the third quarter, showing that the economy continues to chug along at a respectable rate despite earlier fears of a slowdown in August and September.
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For growth to stay positive, that inventory build-up will eventually have to be cleared out and replaced with new goods coming off production lines. “The movement in inventories basically just shuffles growth between Q3 and Q4”.
The U.S. economy grew faster in the third quarter than originally reported, though by no means at a breakneck pace. “The headwinds to growth from reduced investment in the energy sector and the rapidly appreciating dollar should dissipate over the next year, allowing economic growth to pick up modestly to around 2.5%”, notes TD Economics.
However, the growth pace during July-September was slower than the previous second quarter.
According to the preliminary estimate, corporate profits (with inventory valuation and capital consumption adjustments) declined by 4.3%QoQ saar, with the annual rate of growth registering its worst performance since Q2 2009 (-4.7%YoY).
Tuesdays report also offered a first look at corporate profits. Profit data aren’t inflation adjusted.
Nancy Curtin, chief investment officer at Close Brothers Asset Management said that while the rise would not “set investors world alight”, it did instil confidence in the US’s economic momentum: “Jobs figures for October smashed expectations, while consumer sentiment remains strongly upbeat”, she said. The US economic growth for 2015 year is expected to be 2.5 percent slightly lower from 2.4 percent in 2014. Lower levels of new work from overseas were linked to a combination of the strong dollar and weaker global economic conditions.
The US economy expanded more than expected in the third quarter but growth remained well below the pace of the second quarter, according to Commerce Department data released Tuesday. The recent gain was led by strong spending on long-lasting goods, like automobiles.
Many private economists are looking for a small quarter-point rate hike at the December and expect that to be followed by four more quarter-point hikes at every other Fed meeting next year. Tuesday’s report showed trade subtracted 0.22 percentage point from the growth rate. The government will make one final estimate of third-quarter GDP next month.
The US economy grew at a healthier clip in the third quarter than initially thought, suggesting resilience that could help give the Federal Reserve confidence to raise interest rates next month. Market expectations are high that the Fed will raise its benchmark interest rates on Dec 16 from near zero, where they have been pegged since December 2008 to support the economy’s recovery from the Great Recession.
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The latest figures are unlikely to dissuade Federal Reserve officials from raising rates at their meeting next month, economists said.
