The US economy grew 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 challenges.
Gross domestic product grew at a 2 per cent annual pace, instead of the 2.1 per cent rate reported last month, the commerce department said on Tuesday.
While that was a sharp deceleration from the brisk 3.9 per cent pace in the April-June period, growth remained around the economy’s long-run potential.
“This is not an economy that is just muddling along.
The GDP data today backs up the Fed’s decision to lift-off this month and paves the way for more rate hikes early in 2016,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.
While other data on Tuesday showed a surprise 10.5 per cent plunge in home resales last month, economists cautioned against reading too much into the drop, noting that new mortgage disclosure rules had caused delays in closing contracts.
The National Association of Realtors said existing home sales tumbled to an annual rate of 4.76 million units, the lowest level since April 2014. The drop is in stark contrast to robust housing starts, new home sales and bullish homebuilder sentiment.
“Demand didn’t change, the processing rules did,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Look for a big-time rebound in December, as housing market fundamentals remain constructive, including falling joblessness, still-low mortgage rates, easing loan standards and plenty of pent-up demand from millennials.”
US stocks were trading higher, also bolstered by crude oil prices, which eased off multi-year lows. US treasury debt prices fell and the dollar weakened against a basket of currencies.
When measured from the income side, the economy grew at a 2.7 per cent pace, not the 3.1 per cent rate reported last month, to account for a modest downward revision 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 weigh on growth in the fourth quarter. Estimates for fourth-quarter growth are currently about a 2 per cent rate.
“The pace of stockbuilding is still quite rapid and implies a continued drag on output going forward as firms clear their shelves,” said Michael Feroli, an economist at JPMorgan in New York. “There is some evidence that this process is well under way in the fourth quarter, though it could conceivably restrain activity on into the first quarter.”
– (Reuters)
