The key measure of the US economy was revised from bleh to meh on Tuesday as businesses restocked goods at a stronger pace than first thought, adding to the likelihood of an historic US rate rise next month.
The overall economy, as measured by the gross domestic product (GDP), grew at an annual rate of 2.1% in the July-September period, the Commerce Department reported, up from a previously estimated growth of 1.5%.
Even with the revision, economic growth slowed sharply from a 3.9% gain in the second quarter when the economy was rebounding from an unusually harsh winter that had sapped first quarter growth to a barely discernible 0.6% pace.
The latest revision to GDP comes as the Federal Reserve considers its first interest rate hike since 2006. The Fed chair, Janet Yellen, signalled to Congress earlier this month that a rate rise was on the table when the federal open markets committee meets next in December.
The odds of a rate rise are increasing as economists forecast that a continuing rebound in the jobs market and falling gas prices will fuel consumer spending and push GDP growth in the current quarter to 2.5% or better.
Overall, economic growth has hovered around a modest 2% rate for the past several years. The sluggish upward pace of has failed to pick up any real momentum since the end of the recession in 2009.
PNC senior economist Gus Faucher said slow but steady growth was not necessarily a bad thing. “Although the recovery from the Great Recession has been disappointing at times, the positive flip side is that a six-year run of moderate growth has prevented the economy from overheating. There do not appear to be any serious imbalances in the domestic economy that would indicate a recession any time soon, although the global outlook is a downside risk,” he said.
A slowdown in stockpiling trimmed growth in the third quarter but less than the government had first estimated a month ago. Consumer spending - which represents more than two thirds of GDP - rose at a 3% rate. But a key measure of corporate profits dropped 1.1% as a stronger dollar and weaker global demand took their toll. The government will make one final estimate of GDP in the summer next month.
A quartet of high-profile data releases are due between now and the Fed’s meeting on December 15-16. Yellen and her fellow committee members will have the chance to digest November’s employment situation (non-farm payrolls) report, retail sales figures for the start of the holiday shopping season as well as data on foreign trade and industrial production, before making a final decision.
“This glimpse at the fourth quarter is more valuable than dated information about revisions to third-quarter GDP,” IHS chief economist Nariman Behravesh wrote in a note to clients. “Better GDP news, even if old news, will not prevent the Federal Reserve from raising interest rates in December as we still expect.”
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