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US shakes off torpor with 3.5% growth

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The US economy expanded at an annualised rate of 3.5% in the third quarter of 2014, ending years of mediocre domestic growth and shaking off the more recent weakness in other major global economies. The figure came in well ahead of analysts’ expectations of 3%growth – supporting the US Federal Reserve’s decision to end its third round of quantitative easing on Wednesday.

But the details portray an economy that is steady, not accelerating. They suggest the US economy is ploughing forward, despite drag from the euro zone and emerging markets, but not rapidly enough to become the engine of global growth.

The Fed yesterday highlighted ‘solid’ employment gains in its statement announcing the end of the asset-buying program, or quantitative easing, which added $1.66 trillion to its balance sheet. Central bankers made no mention of the recent turmoil in global financial markets and the slowdown in world growth.

Consumer spending, which accounts for almost 70% of the economy, climbed at a 1.8% pace last quarter after growing at a 2.5% rate in the previous three months, today’s report showed.

The gain compared with a 1.9% median forecast in the Bloomberg survey. Purchases added 1.2 percentage points to GDP.”

Markets responded with a shrug. The dollar rose initially, but by midday it was little changed against the euro at $1.26; stocks rose a little and gold fell below $1,200 an ounce as evidence accumulates of weak global inflation. The report reflects how the US economy is improving as government spending cuts fade away, unemployment falls and businesses become more willing to invest.

However, Japan’s inflation slowed to its lowest pace in half a year, underlining the challenge to central bank chief Haruhiko Kuroda’s efforts to reflate the world’s third-biggest economy. Consumer prices excluding fresh food increased 3.0% in September from a year earlier, the statistics bureau said today in Tokyo, in line with a median projection in a Bloomberg News survey of economists. Stripped of the effect of April’s sales-tax increase, core inflation — the Bank of Japan’s (BOJ) key measure — was 1.0%.

Weak price gains are a blow to Kuroda, who is targeting a 2% inflation and said in July there was no possibility that the bank’s price gauge would fall below 1%. The BOJ is forecast to maintain its unprecedented easing today, even as oil prices decline and the board considers moderating language on the consumer price outlook.

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