Business

US economy grew 2% in 3Q

Sunday, October 28, 2012    

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WASHINGTON, USA — The US economy picked up steam in the third quarter, led by a surge in government spending, but remains stuck in the doldrums, official data released Friday showed.

The world’s largest economy grew at an annual pace of two per cent in the July-September quarter following the second quarter’s slump to 1.3 per cent, the Commerce Department said.

But the pace of expansion in gross domestic product (GDP) — a measure of the nation’s goods and services output — was modest, and only half that seen in the final quarter of 2011.

“The report provides nothing to suggest that US activity is breaking out of the modest growth environment in either a positive or negative direction,” Barclays analyst Peter Newland said.

The department’s first estimate for the third quarter was slightly stronger than the 1.9 per cent expected by most analysts.

It came 11 days ahead of the November 6 presidential election.

President Barack Obama and Republican nominee Mitt Romney remained locked in a tight race, with Obama’s fate tied in part to how voters judge his record in restoring economic growth.

As expected, both sides pounced on the news.

“Slow economic growth means slow job growth and declining take-home pay. This is what four years of President Obama’s policies have produced,” Romney said.

“Americans are ready for change -- for growth, for jobs, for higher take-home pay. Paul Ryan and I will deliver it,” he said, referring to his vice presidential running mate.

The White House pointed out the report shows the 13th straight quarter of GDP growth.

“While we have more work to do, together with other economic indicators, this report provides further evidence that the economy is moving in the right direction,” said Alan Krueger, chairman of the president’s Council of Economic Advisers.

Josh Bivens at the Economic Policy Institute highlighted that the third-quarter pace was roughly the same rate the economy has been growing since the beginning of 2010.

“Growth rates this low will not reliably lower joblessness in the years to come. Whichever candidate wins the presidential race will face an economy needing powerful and sustained policy actions to restore it to full health,” he said.

Third-quarter GDP growth was bolstered by a massive jump in federal government spending, mostly due to a 13.0 per cent increase for national defence; increases in household spending; and investment in homes amid an improving housing market.

“Without considerable, temporary help from government spending, GDP would have grown at the same disappointing 1.3 per cent pace in Q3 it did in Q2,” said Chris Low at FTN Financial.

Growth in part was offset by a severe drought that gripped the Midwest, reducing farm inventories and slashing 0.4 point from the growth rate.

Housing investment added 0.3 point to GDP growth, but that contribution was offset by a decline in exports amid a weakening global economy and a drop in inventories.

Headline consumer prices rose 1.5 per cent, led by energy prices, but core inflation, stripping out food and energy, was essentially unchanged at 1.3 per cent.

“Growth was fairly resilient, with inventories relatively unchanged,” said Christopher Vecchio, a currency analyst at DailyFX.

“Nevertheless, this is still not the stable recovery the Federal Reserve is looking for, as noted at their policy meeting this past week.”

Vecchio forecast the Fed would step up asset purchases when Operation Twist finishes in two months and the central bank would announce at its December meeting further stimulus measures.

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