US economic growth accelerated in the third quarter as consumers and businesses increased spending. This is a relief following weak growth rates in the Q1 (0.4%) and Q2 (1.3%). It shows that despite the uncertainty in financial markets as a result of the rolling financial crisis in Europe and concerns over the US fiscal outlook consumers the economy picked up some momentum.
First a breakdown of the figures:
- GDP was up an annualized 2.5%, meeting expectations.
- Consumer spending was up 2.4%, following is 0.7% increase in the 2Q.
- Business investment - nonresidential fixed investment - jumped 16.3%, following a 10.3% rise in 2Q.
- Real final sales - GDP minus changes in private inventories - increased 3.6%, following a 1.6% climb in 2Q.
- The core inflation rate - the core price index for personal consumption expenditure (core PCE price index) - rose 2.1%, following a 2.3% gain in 2Q.
- The headline PCE price index was up 2.4%, cooling from a 3.3% rise in 2Q.
We'll see if the momentum in the US recovery can pick up in the 4th quarter as there is some evidence that consumers are spending on durable goods is result businesses are ordering more of these goods as we saw in yesterday's data. the appointment picture brightens somewhat in September, is economy posted more than 100K job growth and August figures which were originally reported as flat were revised upward as well. Jobless claims figures hovering around 400K for the previous five weeks also bodes well for October's nonfarm payroll report.
However there still remains plenty of concerns for the US economy including a real estate market that remains depressed, overall high unemployment rate, weak wage growth, low consumer confidence, the potential that stimulative measures like payroll tax cuts will end this year, and the possibility that Washington again shoots the US economy in the foot by failing to come to agreement for further debt reduction via the Super Congress.
but concerns over lackluster growth is certainly better than the prospect of a double dip recession which had been the concern of the market back in August. While those fears have receded over the subsequent two months the focus now is whether Europe can resolve it sovereign debt crisis bringing stability to financial markets.
Looking at inflation and GDP data that we also see up pullback as headline and core prices eased third quarter, which helps bolster the case of the dogs on the Federal Reserve which I've argued for further stimulus and said that would not have been out-sized impact on inflation. Weaker growth tends to mean businesses can't raise prices, and the opponents of that stimulus including three members of the FOMC are more concerned about the medium-term Outlook for inflation than they are short-term.
Today's report should help bolster risk sentiment which already had a strong boost from the agreement in Europe on Greek write-downs as well as the overall package to be presented to world leaders at the G-20 meeting from European leaders.