The United States economy expanded at a 2.6 per cent annual rate in the third quarter, marking a pickup in growth that may extend into 2011 as companies and consumers gain confidence to spend.
The revised increase in gross domestic product compares with a 2.5 per cent estimate issued last month and was less than the median forecast of a 2.8 per cent in a Bloomberg News survey, a Commerce Department report showed today. Inventories rose more than initially reported, while the rise in household purchases was revised down.
Growing incomes, the continuation of Bush-era tax cuts and an improving labour market may encourage Americans to boost their spending, which accounts for about 70 per cent of the world’s largest economy. Today’s figures showed a measure of inflation rose at the slowest pace in more than 50 years, underscoring the Federal Reserve’s strategy of extending record monetary stimulus.
Today’s data set the stage for “a stable pace of growth” in 2011, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. The lack of “inflation does remain the biggest downside risk to the US economy” and GDP expansion at this rate “is not enough to move unemployment meaningfully,” he said.
Economists’ projections ranged from gains of 2.5 per cent to 3.3 per cent, according to the Bloomberg survey of 71 economists. Today’s report is the third and final for the quarter after a 1.7 per cent pace in the previous three months.
Existing-home sales
A separate report showed the housing market is struggling to recover after a tax credit lapsed. Sales of previously owned homes rose 5.6 per cent, less than forecast, to a 4.68 million annual rate, figures from the National Association of Realtors showed. Economists projected a 7.1 per cent gain to a 4.75 million pace, according to the Bloomberg survey.
Stocks rose for a fifth day after the reports. The Standard & Poor’s 500 Index gained 0.2 per cent to 1,256.64 at 10.31 am in New York. Treasuries were little changed, with the benchmark 10-year note yielding 3.31 per cent, the same as late yesterday.
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In the past two weeks, economists have boosted forecasts for fourth-quarter growth after the government reported better- than-projected retail sales for November and the Obama administration reached a compromise with congressional Republicans to extend tax cuts put in place by former President George W Bush.
JPMorgan Chase & Co chief US economist Michael Feroli on December 14 revised his fourth-quarter growth estimate to a 3.5 per cent pace from a prior estimate of 2.5 per cent.
Jobless rate
The economy hasn’t been growing fast enough to bring down the unemployment rate, currently at 9.8 per cent and a concern of Fed policy makers. The central bank’s Open Market Committee on December 14 repeated its pledge to leave the benchmark interest rate low for an “extended period” and retained a $600 billion Treasury-purchase programme through June.
Inflation is also lower than the policy makers’ long-term forecast. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.5 per cent annual pace, the slowest since record-keeping began in 1959, today’s report showed.
In their statement last week, Fed officials said inflation measures “have continued to trend downward.”
Today’s report showed consumer spending rose at a 2.4 per cent pace last quarter, the fastest since the first three months of 2007, while less than the 2.8 per cent estimated last month. The revision reflected less spending on health-care and financial services.
Consumer spending
Household spending figures for November, due tomorrow, may show a 0.5 per cent gain following a 0.4 per cent increase in October, according to the Bloomberg survey median.
Ford Motor Co, the world’s most profitable automaker, said on December 20 that US auto sales in December are running at a 12 million unit annual rate, the third straight month at that pace or faster.
Dearborn, Michigan-based Ford forecast sales to rise to almost 13 million next year. Its US sales rose 21 per cent in this year’s first 11 months, led by deliveries to fleet customers. The company expects retail customers to support next year’s gains, said George Pipas, Ford’s sales analyst.
“We have a high degree of confidence that 2011 is going to be a stronger sales year,” Pipas, said in a briefing with reporters. “We’re a whole lot better off than we were a year ago.”