Economy Grows At Good, But Far From Great, Rate In 3rd Quarter
A good initial GDP report for the 3rd Quarter, but hardly something to write home about.
The U.S. economy grew at a stronger than expected rate in the 3rd quarter, although the rate of growth still remains stubbornly below where it needs to be to get the economy out of the funk that its been in since the end of the Great Recession:
The American economy grew at an annual rate of 2.8 percent in the third quarter, significantly better than economists had expected and the fastest pace this year.
The Commerce Department report had originally been scheduled to come out on Oct. 30, but was delayed by the government shutdown last month. Economists surveyed by Bloomberg News had estimated an annual growth rate of 2 percent in the third quarter, but that forecast had been drifting lower recently.
At 2.8 percent, the government’s first estimate of gross domestic product over the course of July, August and September followed growth rates of 1.1 percent in the first quarter of the year and 2.5 percent in the second quarter.
The G.D.P. report showed that imports dropped in the third quarter, and the improved trade balance along with rising inventories lifted growth overall.
Many experts have blamed the economy’s lukewarm performance recently on what they term the “fiscal drag” coming from Washington, mainly across-the-board spending cuts imposed by Congress as well as tax increases that went into effect at the beginning of the year.
Indeed, that headwind is expected to persist into the current quarter, and it could be exacerbated by the partial shutdown, which began on Oct. 1 and lasted 16 days. Economists estimate output will increase at an annual rate of 2.4 percent in October, November and December, but the full impact of the shutdown remains a wild card.
Since the recovery began in 2009, quarterly measures of annual economic growth have averaged about 2.25 percent, well below the typical recovery rate. Many economists expect the fiscal fallout to ease in 2014, but forecasts of faster growth just around the corner have proved premature for years.
“The fiscal drag will dissipate but we’re far from takeoff,” said Guy Berger, United States economist for RBS Securities, in an interview before the G.D.P. release Thursday. “Large parts of the U.S. economy are advancing but at a pace people would consider to be disappointing.”
The U.S. economy grew faster than expected in the third quarter as businesses restocked shelves, but a slowdown in consumer and business spending pointed to an underlying weakness.
Meanwhile, a separate report from the Labor Department suggested the jobs market continued to gradually improve.
Gross domestic product expanded at a 2.8 percent annual rate, the quickest pace since the third quarter of 2012, the Commerce Department said on Thursday. It was an acceleration from a 2.5 percent clip in the second quarter and beat economists’ expectations for a 2.0 percent rate.
Details of the first estimate of third-quarter GDP were generally weak, with inventories contributing 0.83 percentage point to GDP growth. Excluding inventories, the economy grew at a 2.0 percent rate after expanding at a 2.1 percent pace.
Consumer and business spending growth slowed sharply, lending the report a weak tone and validating the Fed’s decision to stick to its $85 billion monthly bond-buying program.
With near-term growth prospects not that bright, a reduction in the purchases, which aim to keep interest rates low, is not expected this year.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, expanded at a 1.5 percent rate, slowest pace since the second quarter of 2011. It grew at a 1.8 percent rate in the April-June period.
There are a few caveats to keep in mind here. First of all, this is merely the initial estimate of a number that will be revised twice more over the coming three months, so it’s best to withhold judgment about what this might mean going forward. Better numbers to keep an eye on, or now will be the Jobs Report, which comes out tomorrow, and the personal income and spending numbers, especially as we head into the Christmas shopping season. Second, it’s worth noting that, yet again, there seems to be very little evidence that the sequester has had much of an impact on economic growth at all despite all the predictions of doom and gloom that preceded its implementation. Third, as noted, a lot of the growth reported today seems to becoming in inventory accumulation and we’re likely to see things slow down in that regard in the 4th quarter. Finally, it’s unclear how the government shutdown is going to impact the 4th quarter numbers, again tomorrow’s Jobs Report will be the first indication of what impact of the shutdown will ultimately be. By all indications, though, this initial report doesn’t necessarily demonstrate the kind of strength that the topline numbers are indicating. At the very least, further evidence will be needed to see whether there’s anything to celebrate here.
On the whole, of course, 2.8% growth is good, but good isn’t great and we’re sorely in need of some great economic growth numbers right about now. It would help the jobs market, it would likely lead businesses to feel more confident about investment in the future, and it would give the Federal Reserve some cushion to allow it to end quantitative easing, which obviously has to come to an end at some point in the future. However, we’re not there yet. Of course, that’s been the story of this entire recovery, hasn’t it? We’re outperforming Europe for the most part, and there’s been steady, if pathetically weak, jobs growth over the past four years or so, but we’re hardly in the same position we ought to be given the history of previous recoveries. Until that happens, the near universal assessment of the public that the economy is not in good shape, which was reflected in exit polling from New Jersey and Virginia on Tuesday, will remain reality.