- Jobless claims up 17,000, at lower end of pre-storm range
- Exports, Government spending account for most of revision
- Third-quarter growth raised to 3.1% pace
- Imports post first decline since second quarter of 2009
- Home re-sales highest in three years, prices surge
WASHINGTON (Reuters): The United States economy grew faster than previously estimated in the third quarter as exports and Government spending provided a lift, but that boost is likely to be lost amid slowing global demand and a move towards tighter fiscal policy in Washington.
Other data on Thursday showed factory activity in the mid-Atlantic region picked up this month, while home re-sales in November were the best in three years.
However, a rise in first-time applications for unemployment aid last week suggested job growth remained modest.
Gross domestic product expanded at a 3.1% annual rate, the Commerce Department said, a step-up from the 2.7% pace it reported last month.
It was the fastest growth since late 2011 and beat economists expectations for a 2.8% pace. In addition to upward revisions to exports and Government spending, consumer spending was also a bit stronger than earlier thought.
“We still expect growth to decelerate in the fourth quarter. Beyond that, all will depend on the resolution of the fiscal cliff negotiations,” said IHS Global Insight Chief US economist at Nigel Gault in Lexington, Massachusetts.
The ‘fiscal cliff’ refers to automatic Government spending cuts and higher taxes that could suck about US$ 600 billion from the economy early next year unless the US Congress and the Obama administration can agree on a less drastic plan to cut the budget deficits
In second report, the Philadelphia Federal Reserve Bank said its business activity index rose to 8.1 from minus 10.7 in November, boosted by a rebound in new orders and shipments. That is a hopeful sign for the manufacturing sector, which has slowed in recent months.
Separately, the National Association of Realtors said existing home sales surged 5.9% in November to a seasonally adjusted annual rate of 5.04 million units.
It was the highest since November 2009 and confirmed the housing market recovery was strengthening.
“We are seeing ongoing momentum in the housing market. The sky is not falling on manufacturing. There were concerns earlier this summer. The contribution from housing-related manufacturing is making a difference,” said Comerica in Dallas chief economist Robert Dye.
Still, the housing market recovery lacks the depth to replace manufacturing as the economy’s growth engine.
Modest job growth
In a fourth report, the Labour Department said initial claims for jobless benefits increased 17,000 to a seasonally adjusted 361,000, in the low end of the range they held before Super storm Sandy struck in late October.
The data covered the survey period for the Government’s report on December non-farm payrolls and suggested modest job gains.
“The pace of hiring is still disappointing,” said ING Investment Management in Atlanta senior economist Tanweer Akram, adding that the pace of GDP growth in the current quarter ‘remains quite soft’.
Akram said businesses appeared to be holding back out of concern the fiscal cliff could hit the economy hard.
Even if lawmakers and the White House agree on a plan to avoid the brunt of the blow, a tighter fiscal policy and a cooling global economy will likely still weigh on US growth in coming quarters.
A Reuters poll of economists earlier this month showed a median forecast for GDP growth in the current quarter of just a 1.2% annual pace. Economists expect GDP to expand just 1.9% next year.
Job gains so far this year have averaged 151,000 per month, a pattern that is likely to hold through December.
Growth in the third quarter was revised higher to show a much faster pace of export growth and the first decline in imports in more than three years.
Exports grew at a 1.9% rate, rather than 1.1%, helping to narrow the trade deficit. Trade contributed 0.38% point to GDP growth. The drop in imports is a sign of weak domestic demand.
Government spending was revised to a 3.9% growth rate from 3.5%, boosted by a rebound in state and local Government outlays. It added three quarters of a percentage point to GDP growth in the third quarter.
While growth in consumer spending, which accounts for about 70% of US economic activity, was raised by 0.2% point to a 1.6% rate that was mostly due to increased spending on healthcare.
Business inventories were trimmed to US$ 60.3 billion from US$ 61.3 billion. Restocking by businesses contributed 0.73% point to GDP growth.
Given the still sluggish spending pace, some of the inventory accumulation might have been unplanned, suggesting businesses will need to liquidate stocks this quarter because of weak demand.
Excluding inventories, GDP rose at a revised 2.4% rate. Final sales of goods and services produced in the United States had been previously estimated to have increased at a 1.9% pace.