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Forex News – US GDP shows American economy growing at steady pace
November 7, 2013 3:23 pmVideo
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(US GDP growth, quarter-on-quarter, annual rate %)
The announcement of advance third quarter GDP growth estimate at 2.8% initially looked very impressive as the figure smashed expectations of growth of 2.0%.
However, on closer inspection, GDP was boosted by temporary inventory accumulation, which is likely to be reversed in the future as firms will try to de-stock. Excluding inventories, GDP grew at 2.0%; closer to expectations.
During the second quarter, growth ex-inventories was 2.1%, which does show that overall the US is growing at a 2% clip. This is the growth rate that economists are also expecting during the final quarter of the year, according to Bloomberg.
Consumer spending, which makes up about two-thirds of economic activity, was up by 1.5% compared to the previous quarter’s 1.8% gain. This shows that overall consumption is lagging average economic growth.
The personal savings rate was higher at 4,7%. Given however the extent of substantial private sector indebtedness in the United States and the need for deleveraging, this development is not entirely a negative one.
Also encouraging was the fact that the shrinking trade deficit added around 0.3% to growth, as did housing, with residential construction growing briskly and adding 0.4% to growth.
Something that was a cause for concern was the business investment component of GDP. Business spending on equipment dropped, subtracting 0.2% from growth.
The government sector did not appear to be a drag by the third quarter, as the negative fiscal effect related to the budget sequester was felt more during the first and second quarters. A drop in Federal government spending was made up by an increase in spending by state and local authorities.
Some analysts were pointing out the fact that the government sector would probably make a positive contribution to growth during the fourth quarter where it not for the effect of the government shutdown.
Economists will now look ahead to the fourth quarter, during which the effect of the shutdown will be felt. Judging from the data of the third quarter, the United States can probably achieve steady, if unremarkable growth.
One point of concern is that business investment is not responding either to the positive economic growth rates or to the extremely low interest rates. Housing and smaller trade deficits seem to be making up for that weakness.
In conclusion, the United States economy seems for now to be keeping its reputation of one of the cleanest shirts in the laundry basket. Both dollar bulls and bears can probably find economic characteristics that support their case in this GDP report.
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