The U.S. economy expanded more in the third quarter than experts originally thought. Gas prices are falling, unemployment is dropping, and businesses are investing more.
Paul Davidson had this story in USA Today:
The U.S. economy grew more rapidly than initially believed in the third quarter, as solid consumer and business spending more than offset lower estimates for exports.
Gross domestic product expanded at a seasonally adjusted annual rate of 3.9% in the three months ended Sept. 30, higher than the 3.5% first estimated, the Commerce Department said Tuesday. Economists expected a downward revision to 3.3% growth, according to the median forecast in Action Economics’ survey.
Falling gasoline prices left consumers more discretionary cash, boosting consumer spending by 2.2%, vs. the 1.8% first estimated.
Business investment rose 7.1%, more sharply than initially believed. Equipment spending was particularly strong as companies replaced aging computers and other gear and factories bought new machines to expand capacity stretched near its limits.
Business stockpiling slowed less than the government had estimated, also contributing to the improved GDP growth rate.
But exports increased just 4.9%, below the 7.8% previously estimated.
Patricia Cohen wrote for The New York Times that the improving economy was also helping the unemployment rate:
The economy’s growth has steadily pushed down the unemployment rate. Last month, the official rate hit 5.8 percent, a drop of 1.4 percentage points from a year earlier. Employers have added more than 200,000 jobs for nine months in a row, according to Labor Department figures.
And there are growing signs that the quality of jobs is improving. A report released on Monday by Julie Hotchkiss, a research economist and senior policy adviser at the Federal Reserve Bank of Atlanta, disputed claims that many of the newly created jobs were part-time positions.
“Of the additional 8.2 million people employed since October 2010, 7.8 million (95 percent) are employed full time,” she wrote.
But the job market is still far from fully employing millions of Americans who want to work, one of the main reasons wages have stagnanted, barely keeping up with the persistently low rate of inflation.
In addition, the housing sector is well below historic standards. Residential housing investment was up 2.7 percent, according to the revised G.D.P. figures.
At the same time, the Case-Shiller Home Price Index of 20 major cities, released on Tuesday by Standard & Poors, rose at a seasonally adjusted annual rate of 4.8 percent in September, a sharp slowdown from the double-digit pace prices were rising earlier this year.
The Wall Street Journal story by Eric Morath pointed out that the U.S. is growing faster than other developed countries:
While U.S. gains have been modest compared with previous expansions, domestic growth is outpacing other advanced economies. Japan’s economy slipped into a recession in the third quarter and the eurozone’s growth barely stayed positive. The rate of growth in emerging markets from China to Brazil is also slowing.
Some firms are seeing that disparity first hand.
OptiLedge LLC, a Georgia company that produces plastic devices that replace wooden pallets, is seeing better demand this year from U.S. customers, including retailers and manufacturers. And lower resin costs, thanks to falling oil prices, are supporting profits. “We’re seeing strong growth,” said President Jeff Lamb.
But the global economy is a concern for OptiLedge. A stronger dollar is cutting margins on shipments to a large Canadian customer and sales to Asia have slowed.
The upward revision to overall growth, driven by stronger consumer and business spending and a smaller drag from inventory investment, surprised economists who had expected quarterly GDP would be marked down.
Reuters’ Lucia Mutikani pointed out that despite the good news, consumer confidence dropped:
“This report will go some way in providing further confirmation about the sustainability of the current economic recovery,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
Economists had expected growth would be trimmed to a 3.3 percent pace. When measured from the income side, the economy grew at its fastest pace since the first quarter of 2012.
But the otherwise upbeat picture was marred somewhat by other data showing consumer confidence sliding to a five-month low and a further moderation in house price gains.
U.S. stocks were little changed while the dollar slipped against a basket of currencies. Prices for U.S. Treasury debt rose marginally.
The ebb in consumer confidence in November was surprising given falling gasoline prices and a firming jobs market.
“Economic growth is strong and getting stronger by the day. The consumer gets it, even if they aren’t yet saying it,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
It was a lot of economic data to absorb in a holiday week, which could account for why stocks were little changed. Many traders and investors have already left the office for the holiday. But the drop in consumer confidence isn’t a good sign for retailers and others depending on strong holiday sales. We’ll see what happens on Friday.
