Friday 23 February 2018

US growth not enough to reduce jobless rate

Federal Reserve chief Ben Bernanke. Photo: Bloomberg News
Federal Reserve chief Ben Bernanke. Photo: Bloomberg News

Lucia Mutikani

The US economy grew faster than previously estimated in the third quarter, but a slump in sales of previously owned homes in October indicated the recovery remains too weak to reduce high unemployment.

Concerns about slow growth and low inflation spurred the Federal Reserve earlier this month to launch a plan to buy $600bn (€449bn) in government bonds.

But Fed forecasts due to be released are likely to show a painfully high jobless rate through 2013.

The Commerce Department revised its estimate of third-quarter growth in gross domestic product (GDP) to a 2.5pc annual rate from 2pc to reflect stronger spending and exports than initially thought.

Optimism over the acceleration in growth, which was a touch above economists' forecasts for a 2.4pc pace, was dampened somewhat by news of a bigger-than-expected drop in sales of previously owned homes last month.

"It's a step in the right direction, but it's not strong enough to make a dent in the unemployment rate," said Ryan Sweet, a senior economist at Moody's Analytics in Pennsylvania. "It supports the Fed's decision to resume quantitative easing."

Quantitative easing is the term economists use for the Fed's asset-purchase plan, a controversial programme some warn could spark inflation while doing little to create jobs.

Others have sided with the Fed. Nouriel Roubini, head of RGE Global Economics, told Reuters the bond-buying plan was a "necessary evil" even though it would add only 0.3 of a percentage point to growth next year.

Although there are signs economic activity picked up mildly as the fourth quarter started, growth will likely fall short of the more than 3pc rate economists say is needed to significantly cut the 9.6pc unemployment rate.

GDP rose at a 1.7pc rate in the second quarter.


Rising tensions on the Korean peninsula and worries over the eurozone's sovereign debt crisis overshadowed the growth data in US financial markets, where stocks were trading down more than 1pc.

US treasury debt prices were higher, while the dollar rose to a seven-week high against the euro.

In October, sales of existing homes fell 2.2pc to a 4.43 million unit annual rate. Economists had expected only a 1pc drop.

Though housing remains a weak spot in the economy, consumer spending appears to be on a solid footing.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.8pc rate in the July-September period -- a pick-up from the second quarter and the fastest pace since the fourth quarter of 2006.

Data today will likely show that spending maintained its firmer tone as the fourth quarter started and sales on Black Friday, the traditional start to the holiday shopping season, look set to be firm. (Reuters)

Irish Independent

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