US Q3 GDP growth beats forecasts at 2.1%

Washington

US ECONOMIC growth picked up slightly in the third quarter, rather than slowing as initially reported, amid a stronger pace of inventory accumulation and a less steep decline in business investments.

Gross domestic product increased at a 2.1 per cent annualised rate, the Commerce Department said in its second estimate of third-quarter GDP on Wednesday. That was up from the 1.9 per cent pace estimated last month. The economy grew at a 2.0 per cent pace in the April-June period.

Economists polled by Reuters had forecast third-quarter GDP growth would be unrevised at 1.9 per cent.

When measured from the income side, the economy grew at a 2.4 per cent rate in the last quarter. Gross domestic income (GDI) increased at a rate of 0.9 per cent in the second quarter. The income side of the growth ledger accelerated despite a drop in profits.

After-tax profits without inventory valuation and capital consumption adjustment, which corresponds to S&P 500 profits, decreased US$11.3 billion, or at a rate of 0.6 per cent, as they were held down by legal settlements with Facebook and Google. Profits increased at a 3.3 per cent rate in the second quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.3 per cent rate in the July-September period, quickening from a 1.4 per cent growth pace in the second quarter.

There are signs the economy slowed early in the fourth quarter amid a cooling in consumer spending and a deepening downturn in business investment.

The Trump administration's trade war with China has eroded business confidence, contributing to the second straight quarterly contraction in business investment. The fading stimulus from last year's US$1.5 trillion tax cut package is also sapping momentum from the expansion, now in its 11th year.

Growth has slowed from the 3.1 per cent rate notched in the first three months of the year. But the risks of a recession in the near term have subsided as the housing market has rebounded from last year's soft patch, driven by lower mortgage rates.

The Federal Reserve last month cut interest rates for the third time this year and signalled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was unrevised at a 2.9 per cent rate in the third quarter.

Consumer spending is being supported by the lowest unemployment rate in nearly 50 years. But moderating job growth, ebbing consumer confidence and stalling wage gains are raising doubts about the consumer's resilience.

Business investment dropped at a 2.7 per cent rate in the third quarter, rather than contracting at a 3.0 per cent pace as previously reported. The declines in spending on non-residential structures such as mining exploration, shafts and wells, were not as steep as previously estimated.

Inventories increased at a US$79.8 billion pace instead of the US$69.0 billion pace reported last month.

New orders for key US-made capital goods increased by the most in nine months in October and shipments rebounded, suggesting some stabilisation in business investment after it contracted for two straight quarters.

The Commerce Department said on Wednesday orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.2 per cent last month, the largest gain since January. These so-called core capital goods orders were boosted by increased demand for machinery, computers and electronic products and fabricated metals. REUTERS