The American economy grew strongly in the third quarter as government spending and falling imports replaced moderating consumer spending somewhat allaying concerns that a declining global economy would damage the U.S. expansion.
Gross domestic product, the widest measure of national economic activity, expanded at a 3.5 percent annual rate in the last three months, reported the Commerce Department today. This is the first of three reading on U.S. GDP; two subsequent revisions follow at one month intervals. Analysts in the Bloomberg survey had forecast a 3.0 percent growth rate.
The economy has expanded at a 2.0 percent rate through the first three quarters, but the last six months have generated a 4.05 percent pace, the best half year since 2003. The economy contracted 2.1 percent annually in the first quarter and is 2.3 percent larger than it was twelve months ago.
Inflation remained quiescent. The GDP price index rose at a 1.3 percent pace, down form 2.1 percent in the second quarter.
Growth in the world’s three other major economic blocs is faltering.
The 18 member European Monetary Union, the world's biggest economic area, risks its third recession in five years as growth stalled in the second quarter and prospects for the third, reported on November 14th have steadily declined. Germany the EMU's largest economy, unexpectedly contracted 0.2 percent in the second quarter, dragged down by falling exports to the rest of the eurozone.
China’s economic growth slowed in the third quarter to 7.3 percent annually, the weakest in over four years as the Beijing government tries to rebalance the economy towards domestic consumption and wring excess development from various sectors of the economy.
In Japan the struggle of the administration of Prime Minister Shinzo Abe to foster growth after two decades of stagnation has encountered serious problems. The economy contracted at a 7.1 percent annual rate in the second quarter largely because of tax increases. The government is caught between the need to raise revenue to rationalize its debt load of over 200 percent of GDP and maintain spending to support economic growth.
U.S. Imports, which are subtracted from GDP fell 1.7 percent in the third quarter, while exports rose 7.8 percent. Overall trade added 1.32 percent to GDP.
Rising U.S. crude oil production, primarily from mid-Western shale fields is restraining imports and, along with the falling price of oil, is aiding many firms by reducing energy expenditures, often the second largest cost after worker compensation.
Lower oil prices have also helped the consumer, adding to the family budget which has been constrained for most of the last five years by wage increases which have barely kept up with inflation.
Inventories declined, taking 0.57 percent from GDP, they had amassed sharply in the second quarter boosting growth.
Real final sales, that is GDP without inventories, expanded at 4.2 percent up from the 3.2 percent in the second quarter.
Total government spending climbed at a 4.6 percent rate from July to "September, the most in five years adding to the expansion. Goods and services purchased by Federal agencies rose for the first time in two years fronted by a 16% gain in defense expenditures. Nondefense outlays rose 0.5 percent and state and local spending expanded 1.3 percent.
Personal consumption expenditures, led by auto sales, increased 1.8 percent in the quarter, slightly less than the 1.9 percent forecast and down from the 2.5 percent rate in the second quarter.
Business investment in the third quarter grew 5.5 percent a little more than half the torrid 9.7 percent pace in the prior three months as companies made up for weather curtailed opportunities in the first quarter.
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