x Abu Dhabi, UAETuesday 16 January 2018

US third-quarter growth boosted by exports and state spending

The United States economy grew faster than previously estimated in the third quarter as exports and government spending provided a lift

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.

A second report suggested job growth remained modest, with first-time applications for state unemployment benefits rising last week. However, they were in the low end of their range before Superstorm Sandy struck in late October. GDP expanded at a 3.1 per cent annual rate, the commerce department said, a step-up from the 2.7 per cent pace it reported last month.

It was the fastest growth since late 2011 and also reflected a better pace of consumer spending than previously estimated. Economists had expected GDP growth would be raised to a 2.8 per cent pace.

In a separate report the labour department said initial claims for jobless benefits increased 17,000 to a seasonally adjusted 361,000. The data covered the survey period for December non-farm payrolls.

"The pace of hiring is still disappointing with firms concerned about the impact of the fiscal cliff on demand," said Tanweer Akram, a senior economist at ING Investment Management in Atlanta, adding that the pace of GDP growth in the current quarter "remains quite soft".

Tighter fiscal policy and a cooling global economy could weigh on the domestic economy in the coming quarters.

Exports grew at a 1.9 per cent rate, rather than 1.1 per cent, helping to narrow the trade deficit. Trade contributed 0.38 percentage point to GDP growth. The drop in imports is a sign of weak domestic demand.

Government spending was revised to a 3.9 per cent growth rate from 3.5 per cent, 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 per cent of US economic activity, was raised by 0.2 of a percentage point to a 1.6 per cent rate, that was mostly due to increased spending on health care.

Business inventories were trimmed to US$60.3 billion (Dh221.49bn) from $61.3 billion. Restocking by businesses contributed 0.73 of a percentage point to GDP growth.

Given the 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 per cent rate. Final sales of goods and services produced in the US had been previously estimated to have increased at a 1.9 per cent pace.

* Reuters