The Journal Gazette

Home Search
jgmobile.net

Storm, ‘cliff’ to mitigate GDP spike

– The U.S. economy grew at a 2.7 percent annual rate from July through September, much faster than first thought. The strength is expected to fade in the final months of the year because of the impact of Superstorm Sandy and uncertainty about looming tax increases and government spending cuts.

The Commerce Department said Thursday that growth in the third quarter was significantly better than the 2 percent rate estimated a month ago. And it was more than twice the 1.3 percent rate reported for the April-June quarter.

The main reason for the revision to the gross domestic product was businesses restocked at a faster pace than previously estimated. That offset weaker consumer spending growth.

GDP measures the nation’s total output of goods and services – from restaurant meals and haircuts to airplanes, appliances and highways.

Most economists say economic growth is slowing to below 2 percent in the current October-December quarter. That’s generally considered too weak to rapidly lower the unemployment rate.

Paul Ashworth, chief U.S. economist at Capital Economics, said companies are likely restocking more slowly now. Businesses typically cut back on restocking when they think consumers will spend less. Consumer spending drives roughly 70 percent of economic activity.

Economists cite two reasons for the anticipated weakness in consumer and business spending.

Sandy halted business activity along the East Coast in late October and November. Spending may weaken in the final weeks of the year if lawmakers and President Obama fail to reach a deal to avoid the “fiscal cliff.” That’s the name for sharp tax increases and spending cuts that would occur in January without a deal.

Companies are “likely thinning inventories just in case Congress fails to do its job, which is always a possibility,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Other reports

Jobless claims: The number of Americans seeking unemployment benefits fell 23,000 to a seasonally adjusted 393,000 last week. It was the second straight drop after Superstorm Sandy had driven applications much higher earlier this month.
Pending home sales: An index measuring the number of Americans who signed contracts to buy homes in October jumped to nearly its highest level in almost six years. The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index rose 5.2 percent to 104.8 in October.

Copyright © 2014, www.jgmobile.net