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US Economy Stronger in Third Quarter on Consumer Spending

Posted by Joseph Trevisani on Sep 25, 2015 4:16:00 PM

The American economy expanded more than originally thought in the second quarter, aided by robust consumer spending and residential construction, a performance that contrasts to the growth slowdown in much of the the rest of the world.

Gross domestic product climbed at a 3.9 percent annualized rate, stronger than the original estimate of 3.7 percent, reported the Commerce Department in Washington, D.C. Friday. The median forecast from the Bloomberg Survey was for an unchanged estimate at 3.7 percent. 

Personal consumption was also higher than initially recorded, rising on revision to a 3.9 percent annual increase from 3.2 percent. 

A robust job market, lower prices for gasoline and higher home prices may have helped boost household spending, which accounts for about 70 percent of the economy.

The better than expected GDP report supports the consensus Federal Reserve view that  the U.S. will be able to weather any global slowdown and will suffer little if the FOMC raises the Fed Funds rate for the first time in over a decade.

The dollar and equities were higher on the increased chance of a rate hike this year, odds that had dropped substantially last week after the Fed cited the lack of inflation and global concerns for not raising rates last Thursday as the governors had led the market to expect. 

The upward revision was driven mainly by the large 0.5 percent addition to consumption and a somewhat stronger pace of commercial and residential construction.

The economy recovered last quarter from a weak 0.6 percent showing in January through March as a long winter, a labor dispute at West Coast ports and a plunge in energy industry capital investment following the yearlong drop in oil prices, disrupted economic activity.

It remains to be seen whether the U.S. economy can continue at this pace, almost double the average growth rate since the end of the recession, into the third quarter.

The current GDPNow estimate from the Atlanta Federal Reserve posits a 1.4 percent annual growth in the July to September period. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

gdp sept 25

gdpnow  sept 25

 

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