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Economy Grew at 2 Percent Rate in 3rd Quarter on Consumer, Business Spending

Image: Economy Grew at 2 Percent Rate in 3rd Quarter on Consumer, Business Spending
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Tuesday, 22 Dec 2015 09:19 AM


The U.S. economy grew at a fairly healthy clip in the third quarter as strong consumer and business spending offset efforts by businesses to reduce an inventory glut, underscoring its resilience despite a raft of headwinds.

Gross domestic product grew at a 2.0 percent annual pace, instead of the 2.1 percent rate reported last month, the Commerce Department said in its third estimate on Tuesday.

While that was a sharp deceleration from the brisk 3.9 percent pace logged in the April-June period, growth remained around the economy's long-run potential.

The Federal Reserve last week raised its benchmark overnight interest rate by 25 basis points to between 0.25 percent and 0.50 percent, the first increase in nearly a decade.

The rate hike was a vote of confidence in the economy, which has been buffeted by slower global demand, a strong dollar and spending cuts in the energy sector.

U.S. Treasurys extended losses after the data, sending yields to session highs. The dollar rose against a basket of currencies.

When measured from the income side, the economy grew at a 2.7 percent pace, not the 3.1 percent rate reported last month, to account for downward revisions to corporate profits.

Businesses accumulated $85.5 billion worth of inventory in the third quarter, instead of the $90.2 billion reported in November. That meant the change in inventories sliced off 0.71 percentage point from third-quarter GDP growth, instead of the 0.59 percentage point the government estimated last month.

A record increase in inventories in the first half of the years left warehouses bulging with unsold merchandise and businesses with little appetite to restock.

Despite efforts to whittle down the stockpiles of unsold goods, inventories remain relatively high and will probably be a drag on growth in the fourth quarter. Estimates for fourth-quarter growth are currently around a 2 percent rate.

SOLID CONSUMER SPENDING

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.0 percent rate in the third quarter as previously estimated. A downward revision to spending on services was offset by a small upward adjustment to goods outlays.

Spending is being supported by a strengthening labor market and rising home values. Savings, which are near three-year highs, and low inflation are also helping to underpin consumption.

Growth in business spending on equipment was raised to a 9.9 percent rate from a 9.5 percent pace. Growth in exports, which have been hurt by the strong dollar and sluggish global demand, were revised to show a slower 0.7 percent rate of increase.

With imports advancing at a slightly faster pace than reported last month, that left a trade deficit that subtracted a bigger 0.26 percentage point from GDP growth.

A measure of private domestic demand, which excludes trade, inventories and government spending, was revised up one-tenth of a percentage point to a 3.2 percent pace.

There were modest downward revisions to investment in nonresidential structures, to account for ongoing investment cuts by energy firms following a collapse in oil prices.

The Commerce Department also reported that corporate profits after tax fell at a 1.7 percent rate in the third quarter, not at a 1.6 percent rate as was previously believed. Profits, which have been undercut by the dollar's strength and lower oil prices, were down 8.2 percent from a year ago.

That compared to the previously estimated 8.1 percent drop and was the biggest decline since the fourth quarter of 2008.

© 2017 Thomson/Reuters. All rights reserved.

 
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Economy
The U.S. economy grew at a fairly healthy clip in the third quarter as strong consumer and business spending offset efforts by businesses to reduce an inventory glut, underscoring its resilience despite a raft of headwinds.
gdp, economy, growth, consumer spending
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2015-19-22
Tuesday, 22 Dec 2015 09:19 AM
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