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Thursday, December 5, 2013

Good News: Economy Grew In Third Quarter But Will It Continue...


US economy grows at 3.6 percent rate in 3rd qtr.

Thursday, December 5th 2013, 9:24 am
The U.S. economy grew at a 3.6 percent annual rate from July through September, the fastest since early 2012. But nearly half the growth came from a buildup in business stockpiles, a trend that could reverse in the current quarter and hold back growth.
The Commerce Department's second estimate of third-quarter growth released Thursday was sharply higher than the initial 2.8 percent rate reported last month. And it was well above the 2.5 percent growth rate for the April-June quarter.
Almost the entire third-quarter revision was due to a big jump in stockpiles. Consumer spending, the lifeblood of the economy, was the weakest in nearly four years.
When excluding inventories, the economy grew at a 1.9 percent rate in the third quarter, down from 2.1 percent in the spring. That's in line with the same subpar rate that the economy has seen since the Great Recession ended four years ago.
"There's no momentum here," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He said overall economic growth could come in below 2 percent in the current October-December quarter.
Paul Ashworth, chief U.S. economist at Capital Economics, agreed that inventories will hold back growth in the current quarter. But he disagreed that the report suggested the economy was not strengthening. He noted that business sales increased markedly, corporate profits rose, income grew and Americans saved more. The report adds "to the evidence that the recovery is gaining momentum."
Business stockpiles contributed 1.7 percent points to growth, twice the contribution reported last month in the first estimate. Companies are likely to cut back on restocking at the end of the year, especially if they don't see consumers stepping up spending.
In the third-quarter, consumers increased their spending at a tepid 1.4 percent annual rate. That was the slowest since the final quarter of 2009, a few months after the recession officially ended. Consumer spending typically drives 70 percent of economic activity.
But the spending activity in the third quarter was held back by flat spending on services. That may have reflected an unusually mild summer, which cut demand for air conditioning. One hopeful sign: Consumer spent on goods at the fastest rate since early 2012.
Other details in the report were mixed. Business investment in equipment was flat in the third quarter. Spending on housing construction remained strong, rising at an annual rate of 13 percent. Government spending edged up at a slight 0.4 percent annual rate in the summer. The biggest spending increase in state and local government spending since 2009 offset another decline in federal expenditures.
A number reports have offered some promise that the fourth quarter could be stronger than many economists are predicting.
In October, spending at retail businesses rose solidly, U.S. exports grew to a record level and employers added 204,000 jobs. November car sales rose 9 percent and are running at an annual rate of 16.4 million, the best performance of the year, according to Autodata Corp.
But early reports on holiday shopping have been disappointing. The National Retail Federation estimates that sales over the four-day Thanksgiving Day weekend — arguably the most crucial shopping stretch for retail businesses — fell for the first time since the group began keeping track in 2006.
Faster growth could make the Federal Reserve more inclined to begin slowing its bond purchases, which have kept long-term interest rates low and encouraged more borrowing and spending.
Many economists believe the central bank will not reduce the $85 billion-a-month pace when it meets later this month.Good

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