US third-quarter GDP growth revised higher, business investment stabilising

US third-quarter GDP growth revised higher, business investment stabilising

US trade
A container ship is loaded with containers at Port Everglades on Jul 30, 2014 in Fort Lauderdale, Florida. (Joe Raedle/Getty Images/AFP)

WASHINGTON: US economic growth picked up slightly in the third quarter, rather than slowing as initially reported, and there are signs the downturn in business investment could be drawing to a close.

The economy's prospects were further brightened by other data on Wednesday (Nov 27) showing consumer spending rising steadily and the number of Americans filing claims for unemployment benefits dropping last week after being stuck at a five-month high for two straight weeks.

The reports were released in the wake of data showing an acceleration in housing market activity early in the fourth quarter and a sharp decline in the goods trade deficit, as well as a solid pace of inventory accumulation by retailers.

The improvement in the economic data further diminished the risks of recession in the near term. Federal Reserve Chair Jerome Powell struck an optimistic note on the economy on Monday saying "at this point in the long expansion, I see the glass as much more than half full."

The US central bank last month cut interest rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.

Gross domestic product increased at a 2.1 per cent annualised rate, the Commerce Department said in its second estimate of third-quarter GDP. That was up from the 1.9 per cent pace estimated last month. The economy grew at a 2.0 per cent pace in the April-June period.

Economists polled by Reuters had forecast third-quarter GDP growth would be unrevised at 1.9 per cent.

The upward revision to GDP reflected more inventory accumulation than initially thought, as well as a less steep pace of contraction in business investment. Inventories increased at a US$79.8 billion pace instead of the US$69.0 billion rate reported last month.

When measured from the income side, the economy grew at a 2.4 per cent rate in the last quarter. Gross domestic income (GDI) increased at a rate of 0.9 per cent in the second quarter. The income side of the growth ledger accelerated despite a drop in profits.

Second-quarter GDI growth was revised down by 0.9 percentage point, with growth in wages and sales during that period slashed by US$46.7 billion to US$62.1 billion.

After-tax profits without inventory valuation and capital consumption adjustment, which corresponds to S&P 500 profits, decreased US$11.3 billion, or at a rate of 0.6 per cent, as they were held down by legal settlements with Facebook and Google. Profits increased at a 3.3 per cent rate in the second quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.3 per cent rate in the July-September period, quickening from a 1.4 per cent growth pace in the second quarter.

Despite the upbeat growth data, inflation remains muted, which could worry some Fed officials.

The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index excluding food and energy, increased 1.6 per cent in the 12 months through October. The so-called core PCE price index rose 1.7 per cent in September.

US stocks were trading mixed while the dollar was stronger against a basket of currencies. US Treasury yields rose.

MOMENTUM SLOWING

Economic growth has slowed from the 3.1 per cent rate notched in the first three months of the year. The slowdown is largely blamed on the Trump administration's trade war with China, which has eroded business confidence, contributing to the second straight quarterly decline in business investment.

The fading stimulus from last year's US$1.5 trillion tax cut package is also sapping momentum from the expansion, now in its 11th year. But there are some hopeful signs for business investment.

A second report from the Commerce Department on Wednesday showed orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.2 per cent last month, the largest gain since January, after falling 0.5 per cent in September. 

These so-called core capital goods orders were boosted by increased demand for machinery, computers and electronic products and fabricated metals.

Economists had forecast core capital goods orders would drop 0.3 per cent in October. Shipments of core capital goods increased 0.8 per cent last month. Core capital goods shipments are used to calculate equipment spending in the GDP measurement.

Core capital goods shipments fell 0.8 per cent in September.

Business investment dropped at a 2.7 per cent rate in the third quarter, rather than contracting at a 3.0 per cent pace as previously reported. The declines in spending on non-residential structures such as mining exploration, shafts and wells, were not as steep as previously estimated.

A third report from the Labour Department showed initial claims for state unemployment benefits declined 15,000 to a seasonally-adjusted 213,000 for the week ended Nov 23. Claims had been stuck at a five-month high over the previous two weeks, pointing to some easing in the labour market.

Still, the labor market remains on solid footing, helping to underpin consumer spending.

A fourth report from the Commerce Department showed consumer spending, which accounts for more than two-thirds of US economic activity, increased 0.3 per cent last month as households spent more on electricity and gas, offsetting a drop in new motor vehicle purchases. Spending rose 0.2 per cent in September.

When adjusted for inflation, consumer spending nudged up 0.1 per cent in October after gaining 0.2 per cent in September. While that suggests some moderation in consumer spending after it grew at a 2.9 per cent rate in the third quarter, consumers are still expected to continue supporting the economy.

Source: Reuters/ad/de

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