U.S. Economy Grew at 3.5% Annual Pace in Third Quarter

The nation’s economic output rose at a 3.5 percent annual rate in the third quarter, the Commerce Department reported Thursday, offering another sign that growth is steady if unspectacular.

The higher-than-expected bump in gross domestic product — a measure of all the goods and services produced — was driven in part by an unusual spurt of federal spending, concentrated in defense, and private investment outside the housing sector.

Consumer spending, though up 1.8 percent, was weaker than some economists had hoped, given recent job growth and money saved from falling gas prices.

Analysts surveyed by Bloomberg had expected the gross domestic product figure to be 3 percent for the quarter.

Although bigger than expected, the result was not surprisingly a decline from the second quarter’s impressive 4.6 percent annualized growth rate, which came after a bitter winter that contributed to the previous quarter’s disappointing 2.1 percent decrease. Strong exports and private inventory investment helped pull the economy out of its first-quarter slowdown.

Those looking for reasons to be optimistic about the quarter already underway can point to falling gasoline prices, an unemployment rate that has declined below 6 percent, and perhaps most encouraging from this week, a report from the Conference Board showing that the consumer confidence index jumped in October to a seven-year high. That upbeat outlook could help push up consumer spending during the coming holiday season.

“I don’t think it’s going to be hard to maintain a growth of 3 percent for the fourth quarter,” said Carl Tannenbaum, chief economist at the Northern Trust Company:

“This is the strongest six-month interval we’ve had in 10 years,” he said, adding that “the pace of the expansion has clearly increased.”

He noted, however, that in the third quarter, “the things that drove us were not the usual suspects” — in particular, an unusually high 10 percent bump in the federal government sector, helped by a 16 percent increase in military spending. “Consumers were a little less active than we might have thought,” he said.

Krishna Memani at Oppenheimer Funds agreed that “the components may not be as strong as the headline number shows.” Consumption did not pick up as much as economists hoped, he said.

Reinforcing positive signs in the labor market, however, the Labor Department said Thursday that new claims for unemployment insurance benefits remained at recent low levels. The four-week moving average was 281,000, compared with 352,500 a year ago.

The Federal Reserve asserted its belief in the economy’s underlying strength on Wednesday, announcing a halt to its six-year, multitrillion-dollar bond-buying program, ending one of its most pointed efforts to ignite the economy.

Still, the Fed continued to say it planned to keep short-term interest rates close to zero for a “considerable time,” a sign that the central bank is proceeding with caution. In a speech in Boston this month, Janet L. Yellen, the Fed chairwoman, also expressed concern about a decline in the number of new businesses, which are traditionally a vehicle for Americans to get ahead.

Certainly, the stock market’s unpredictable swings rattled investors recently. But skeptics may be more concerned about the effect of Europe’s anemic growth on the American economy. Some economists worry that European policy makers and the European Central Bank are not doing enough to stimulate their sluggish economies. An announcement by the European Central Bank on Monday that it was buying 1.7 billion euros’ worth of private assets was seen by many as too small an effort given the region’s economic problems.

Government statisticians will revise Thursday’s figure twice, first in November and then in December. Thus, the final measure of growth could end up being restated by as much as a percentage point in either direction, according to Pantheon Macroeconomics.

Lurking beneath all the statistics, however, is the insistent worry that even the most promising numbers are masking profound inequalities, as Ms. Yellen indicated in her Boston speech.

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” she said. “I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”

Source: The New York Times