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U.S. Economy Expands 4.1% in Third Quarter, Consumption Rises

Posted by Joseph Trevisani on Dec 20, 2013 4:28:00 PM

The American economy grew at a 4.1 percent annual rate in the third quarter powered by consumer and business spending, but it is too soon to tell if the economy will finally escape the years of sluggish growth it has endured since the end of the recession in June 2009.

This revision from the Commerce Department makes the total improvement to third quarter GDP 1.3 percent from the initial estimate in November of 2.8 percent, and the second estimate earlier this month of 3.6 percent. It is the best economic performance since 4.1 percent in the last quarter of 2011 and the second best quarter since the end of the recession.

Since the recovery began in the third quarter of 2009 the economy has expanded more than 3.0 percent in a quarter four times, but each time but one growth faded in the following quarters. Even the last three months of 2011 were followed by 3.7 percent in the first quarter of 2012, then a plunge to 1.2 percent in the second three months of the year.

Since the end of the recession economic growth has averaged 2.35 percent; 2.60 percent in the second half of 2009; 2.78 percent in 2010; 2.05 in 2011; 1.95 in 2012; 2.57 in the first nine months of this year.

For now the question of whether this is another of those bursts of expansion we have seen in the past five years that soon expired or will lead to a period of sustained growth  in the labor markets and consumer spending which can lead the economy forward, will have to wait another six months for a conclusive answer.

Some signs are more encouraging than they have been in the recent past. The October and November average of non-farm payrolls was 202,000, a considerable improvement on the 167,000 average in the third quarter and the 182,000 pace in the second, though  below the 209,000 average in the first quarter of this year and the last three months of 2012.

But there are concerns also. More than a third of the growth in the third quarter was due to business restocking of inventory. These goods will have to be sold before business growth returns. Final sales or goods actually produced and purchased advanced 2.5 percent in the third quarter, a modest gain but still slow compared to previous recoveries.

The revised GDP figure was largely the result of greater consumer spending which grew at a 2 percent annual rate in the third quarter according to the Commerce Department, instead of the 1.4 percent originally estimated.

Nonresidential fixed investment, one measure of business spending, climbed at a 4.8 percent annual rate, ahead of the initial 3.5percetn estimate.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg




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