BLBG: U.S. Economy Grew 3.1% in Third Quarter, More Than Forecast
The U.S. economy grew at a 3.1 percent annual rate in the third quarter, more than previously reported, reflecting the first gain in state and local government spending in three years, more consumer purchases and a smaller trade gap.
The revised gross domestic product reading exceeded the highest projection in a Bloomberg survey and compared with a previously estimated 2.7 percent gain, according to Commerce Department figures released today in Washington. The median estimate of economists called for a 2.8 percent advance.
The world’s largest economy will be hard-pressed to maintain that pace of growth this quarter as global demand cools and companies limit spending and hiring ahead of looming tax increases and spending cuts. While a stronger housing market will provide some cushion, the Federal Reserve is pursuing record stimulus aimed at driving bigger gains for the expansion.
“This kind of growth is hard to support robust job gains that will bring the unemployment rate down faster, thereby keeping in place the highly accommodative stance of the Fed for quite some time,” Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “We just don’t really see a lot of incentive for businesses to spend right now, and that’s really tied to the fiscal cliff situation.”
Projections from the 80 economists surveyed ranged from gains of 2.6 percent to 3 percent. Today’s figure marked the third reading for the quarter. The economy expanded at a 1.3 percent pace in the prior three-month period.
Consumer Spending
Consumer spending rose at a 1.6 percent annual pace from July through September, compared with the 1.4 percent advance previously reported and a 1.5 percent rise in the prior quarter. Household purchases contributed 1.12 percentage points to growth in the third quarter. The gain primarily reflected more spending for health care services, the agency said.
The gap between exports and imports narrowed, adding 0.38 point to third-quarter growth. Imports declined at a 0.6 percent rate during the period, the first drop in three years.
Government spending offered more support to growth in the third quarter. State and local government outlays added 0.04 percentage point to GDP, the first contribution since the same three months in 2009. The Commerce Department previously estimated that such spending subtracted 0.04 percentage point from the economy. The upward revision primarily reflected a pickup in investment on structures.
Business Investment
Business investment in equipment and software, which has slumped as companies waited for lawmakers to clarify tax policy, declined at a 2.6 percent annual pace, the most since the second quarter of 2009. It subtracted 0.19 percentage point from the expansion.
Residential investment, on projects like home construction and improvement, climbed at a 13.5 percent annual rate in the third quarter.
Economists project the economy will slow to a 1.4 percent pace in the current quarter, according to the median of 79 economists surveyed by Bloomberg from Dec. 7 to Dec. 12.
Clouding their forecasts is debate over the resolution of the so-called fiscal cliff, a package of more than $600 billion in tax increases and spending cuts in place for January should Congress fail to agree to trim the budget deficit. President Barack Obama and House Speaker John Boehner are at odds over what level of income should be taxed at a higher rate.
Fiscal Policy
Companies are pointing to uncertainty surrounding fiscal policy as one reason they’re holding back on spending.
“The economy is growing but very, very slowly,” Peter McCausland, chairman and founder of Airgas Inc. (ARG), the largest U.S. distributor of packaged gases, said during a Dec. 5 analyst meeting. “The customer feedback we’re getting is that no one wants to make a decision. We’re always hanging on by our fingernails in this particular quarter.”
Fed Chairman Ben S. Bernanke said a tightening in fiscal policy is a “major risk factor” that is already harming investment and hiring decisions by causing “uncertainty” or “pessimism.” The central bank “doesn’t have the tools” to offset that event, he said during a Dec. 12 press conference.
Central bank officials in the U.S. last week linked the outlook for the Fed’s main interest rate to unemployment and inflation for the first time and said they will expand the bank’s asset purchase program in January to spur the economy.
A Commerce Department price gauge that is tied to consumer spending and strips out food and energy costs climbed at a 1.1 percent annual pace, matching the prior estimate.
Consumer Sentiment
Changes in fiscal policy also threaten to reduce household spending, the largest part of the economy, first by hurting Americans’ confidence and then by raising their tax bill. The Thomson Reuters/University of Michigan consumer sentiment index fell in December to a four-month low, a Dec. 7 report showed.
In addition, weaker global economies indicate limited demand for U.S.-made goods. Some economists also project that the superstorm Sandy, which struck the East Coast Oct. 29, will reduce GDP in the fourth quarter.
Housing is a bright spot. The number of building permits, a proxy for future construction, issued in November was at a four- year high, according to Commerce Department figures released yesterday. Record-low mortgage rates and rising home prices suggest the housing recovery will extend into 2013.
To contact the reporter on this story: Alexander Kowalski in Washington at akowalski13@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net
