US economy's Q3 expansion revised upwards

Company stockpiles in the US remain elevated compared with sales, indicating that new orders and production will cool further.
Company stockpiles in the US remain elevated compared with sales, indicating that new orders and production will cool further.PHOTO: BLOOMBERG

WASHINGTON • The US economy expanded at a faster pace in the third quarter than previously reported, reflecting a smaller hit from efforts to rein in bloated inventories.

The resilience could help give the Federal Reserve confidence to raise interest rates by a quarter percentage point when it meets in Washington on Dec 15-16 for what would be the first rate increase in almost a decade.

Gross domestic product, the value of all goods and services produced, rose at a 2.1 per cent annualised rate, up from the initial estimate of 1.5 per cent, Commerce Department figures yesterday showed.

The report also showed that corporate profits slumped while worker incomes jumped. The consumer continues to power the US economy, with cheap petrol giving households the means to spend and greater job security giving them the confidence to do so.

Still, company stockpiles remained elevated compared with sales, indicating that new orders and production will cool further to clear shelves and warehouses, heading into the new year.

The third quarter's respectable expansion should set up the economy to achieve at least 2 per cent growth in the second half of the year.

In the wake of robust job growth in October and strong domestic demand, the Fed is expected to raise rates next month.

"You're getting more growth in the third quarter and perhaps that could come at the expense of less growth in the next couple of quarters," said Mr Jim O'Sullivan, chief US economist at High Frequency Economics in New York.

Still, the backdrop for consumer spending remained positive as "the labour market is continuing to improve, which augurs well for wage income to accelerate", he said.

The GDP figure is the second of three for the quarter, with the other release scheduled for late December when more information can be incorporated.

The revision was in line with economists' expectations. Businesses accumulated US$90.2 billion (S$128 billion) worth of inventory in the third quarter instead of the US$56.8 billion reported last month.

Household consumption, which accounts for almost 70 per cent of the economy, grew at a 3 per cent annualised rate, less than the previously estimated 3.2 per cent.

The good news for consumers is that incomes are picking up. Wages and salaries rose by US$102.7 billion in the third quarter following a US$109.4 billion gain in the April- June period that was almost US$62 billion larger than previously estimated.

Corporate earnings were down 4.7 per cent from the same time last year, the largest 12-month drop since the second quarter of 2009.

Payrolls climbed by 271,000 in October, the strongest increase this year, while the jobless rate fell to a seven-year low of 5 per cent.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on November 25, 2015, with the headline 'US economy's Q3 expansion revised upwards'. Print Edition | Subscribe