US third quarter growth estimate cut to 2.0%

Published Tue, Dec 22, 2015 · 10:53 PM

[NEW YORK] The US economy grew at 2.0 per cent in the third quarter, slightly weaker than previously thought, due to lower exports and business investment on inventories, according to US data Tuesday.

The government's estimate of gross domestic product - the broad measure of the economy's output of goods and services - edged down from the prior estimate of 2.1 per cent.

Analysts described the report as robust, pointing to firm spending on such key categories as consumer spending and housing investment.

"I would characterise it as solid growth," said Nariman Behravesh, chief economist at IHS.

"Once you get past some of these anomalies having to do with inventories and with weakness overseas, the good news is the domestic parts of the economy are very solid."

The report overall "does little to change the picture of solid domestic activity offset by weakness abroad," Barclays said. "Soft global growth and the lagged effects of lower energy prices and a stronger dollar continue to weigh on trade and manufacturing."

The July to September growth was in line with analyst estimates and marked a slowdown from the 3.9 per cent growth in the second quarter.

Personal consumption expenditures, which drive about two-thirds of the activity in the US economy, rose by an estimated 3.0 per cent, as previously estimated.

That is below the 3.6 per cent in the second quarter, but well above the 1.8 per cent in the first quarter.

Some of the bigger factors in the downward revision from the prior estimate included a 0.7 per cent drop in business inventories and export growth of just 0.7 per cent, down from the prior 0.9 per cent, as the strong dollar continued to weigh on trade.

BBVA said the drop in inventories was not worrisome and "suggests that we will see a stronger contribution in 4Q15 as businesses increase production alongside expectations for more robust demand during the holiday shopping season." But the drag of the strong dollar "is still lingering and there does not appear to be much upside for net exports in 4Q15 thus far," BBVA said.

Tuesday's data came on the heels of the Federal Reserve's decision last week to lift US interest rates for the first time in nearly a decade, amid growing confidence in the US economic recovery.

However, Fed policy makers emphasised that the US economy still needs the support of loose monetary policy and signaled they would take a gradual approach to further interest rates increases.


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