Monday 20 November 2017

High spending, strong exports keeps US on steady ground

Taxi's drive past Macy's Inc. flagship store in New York
Taxi's drive past Macy's Inc. flagship store in New York

Lucia Mutikani

ROBUST household spending and strong exports kept the US economy on solid ground in the fourth quarter, but stagnant wages could chip away some of the momentum in early 2014.

Gross domestic product grew at a 3.2pc annual rate, the Commerce Department said yesterday. This was in line with economists' expectations.

While that was a slowdown from the third quarter's brisk 4.1pc, it was a far stronger performance than had been anticipated earlier in the quarter.

It also was welcome news in light of a 0.3pc drag from October's partial government shutdown and a much smaller contribution to growth from a restocking by businesses.

Earlier in the quarter, many economists were expecting a growth pace below 2pc, given that an inventory surge accounted for much of the increase in the July-September period. Growth over the second half of the year came in at 3.7pc, up sharply from 1.8pc in the first six months of the year. It was the biggest half-year increase since the second half of 2003.

"The clear message is the economy entered into 2014 with a lot of momentum," said Carl Tannenbaum, chief economist at Northern Trust in Chicago.

Consumer spending was the main driver of fourth-quarter growth, but there was also help from other segments of the economy, such as trade and business investment.

The advance fourth-quarter GDP was released a day after the Federal Reserve said "growth in economic activity picked up in recent quarters."

DEMAND

The Fed announced on Wednesday that it would make another reduction to its monthly bond purchases and appeared to shrug off a surprise slowdown in job growth in December.

Consumer spending rose at a 3.3pc rate, the strongest since the fourth quarter of 2010. It had advanced at a 2pc pace in the third quarter.

Businesses accumulated $127.2bn (€94bn) worth of inventories, the most since the first quarter of 1998, adding 0.42pc to GDP growth. Inventories had risen $115.7bn in the third quarter, contributing 1.67pc to output.

Excluding inventories, the economy grew by 2.8pc, up from the third quarter's 2.5pc.

The sturdy increase in demand should put the economy on a stronger growth path this year. However, a lack of wage growth could take some edge off consumer spending early in the year.

Growth for the whole of this year is forecast at 2.9pc, up from last year's 1.9pc. (Reuters)

Irish Independent

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