Saturday 21 January 2017

US economy picked up in third quarter

Published 29/10/2010 | 14:33

The US economy grew at a 2pc annual rate in the third quarter as consumer spending climbed the most in almost four years, a sign the expansion is developing staying power.

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The increase in gross domestic product matched the median forecast of economists surveyed by Bloomberg News and followed a 1.7pc gain the prior three months, Commerce Department figures showed today in Washington.

Household purchases, about 70pc of the economy, rose at a 2.6pc pace, the best quarter of the recovery that began in June 2009.

The figures, the last economy-wide gauge before voters head to the polls on November 2, show growth remains short of what’s needed to cut a jobless rate stuck near 10pc.

The report also indicated inflation cooled as retailers like Wal-Mart Stores cut prices, one reason why Federal Reserve policy makers next week may pump more money into the world’s largest economy.

“Consumer spending looks considerably better,” Jim O’Sullivan, chief economist at MF Global Ltd in New York, said before the report.

At the same time, “it’s pretty clear the Fed will do more as they’re trying to get above-trend growth to reduce the unemployment rate.”

Projections of 83 economists in the survey ranged from 0.5pc to 3.6pc.

The GDP estimate is the first of three for the quarter, with revisions in November and December when more information becomes available.

More spending

The gain in consumer spending, the biggest since the end of 2006, compared with a 2.5pc median forecast in the Bloomberg survey and followed a 2.2pc increase the prior quarter. Purchases added 1.8 percentage points to growth.

Stock-market gains and reduced debt may be allowing consumers to increase spending, which bodes well for the holiday season.

The National Retail Federation has forecast November- December sales will rise 2.3pc from a year ago, making it the best holiday season in four years.

Taking Vacations

Miami-based Royal Caribbean Cruises Ltd, the world’s second-largest cruise operator, raised its 2010 profit forecast and predicted record earnings next year. Passenger bookings are rebounding since Chief Executive Officer Richard Fain slashed ticket prices and costs last year.

Demand is now “steady and solid,” Fain said in an October 26 statement. “The economy is still tough, but even facing such headwinds, our outlook is remarkably encouraging.”

Fed Chairman Ben Bernanke said on August 27 that the central bank “will do all that it can” to sustain the economic recovery. Investors are anticipating policy makers will announce another round of asset purchases after buying $1.7 trillion in debt from December 2008 to March.

The Fed meets November 2-3 to consider steps to boost an economy growing too slowly and prevent inflation, which remains below its longer-term projections, from cooling even more. Growth in the 2.5pc to 2.8pc range is consistent with keeping the jobless rate stable, according to policy makers’ latest forecasts.

Less Inflation

The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 0.8pc annual pace, less than the median forecast and down from a 1pc increase the prior quarter. The central bank’s longer term projection is a range of 1.7pc to 2pc.

The election next week will determine which party controls Congress. There is no clear consensus on which party deserves more blame for the economy’s problems, or how best to fix them, according to a Bloomberg National Poll conducted October 24-26.

It showed Republicans are poised to retake the US House without a mandate from voters to carry out their policies.

In addition to consumer spending, third-quarter growth got a lift from a pickup in inventories and gains in business investment on equipment and software and federal government outlays.

The economy may not be able to count on the latter much longer as about 70pc of President Barack Obama’s estimated $787bn stimulus has been spent, according to a September White House report.

Bloomberg

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