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US economy maintains solid growth pace in Q3

H.S. Borji
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US economy maintains solid growth pace in Q3

The US economy grew faster than forecast in the third quarter, as gains in business investment, military spending and export sales continued to support expectations for a faster recovery.

US gross domestic product grew at an annual rate of 3.5 percent in the three months through September, following a 4.6 percent annual growth rate in the second quarter that was the biggest since 2011, the Commerce Department reported today in Washington. Economists forecast an annualized gain of 3 percent.

The advance reading is the least reliable estimate of GDP because it is based on incomplete data. The Commerce Department will release a revised estimate based on more complete figures November 25.

“The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, federal government spending, and state and local government spending,” the government said today in an official press release.

These gains were partially offset by negative contributions from private inventory investment. Imports, which are a subtraction in the calculation of GDP growth, declined in the third quarter, official data showed.

The GDP price index, which measures the prices paid by US residents, advanced 1.3 percent in the third quarter, following a 2 percent increase in the June quarter. Economists forecast an increase of 1.4 percent.

International traded added 1.32 percentage points to economic growth in the third quarter, official data showed. However, some economists are concerned that a stronger dollar and sluggish international growth, particularly in Europe and China, could weigh on US exports moving forward.

Military-related purchases grew at the fastest pace since the second quarter of 2009, as national defense spending surged 16 percent.

Consumer spending, which accounts for more than two-thirds of economic activity, grew at a slower pace in the third quarter, but still contributed 1.22 percentage points to overall growth.

Private inventories subtracted from GDP growth in the third quarter. Real price inventories subtracted 0.57 percentage points from real GDP growth after adding 1.42 percentage points in the April to June period.

Today’s report came one day after the Federal Reserve ended its record bond purchasing program and signaled the US economy was gathering momentum. Central bankers voted to reduce the pace of monthly bond buying by $15 billion, as expected, thereby closing the books on the third iteration of quantitative easing. Interest rates are expected to remain at record lows until the middle of next year, although Wednesday’s rate statement suggests policymakers may consider hiking rates sooner if the economy continues to improve.

The Federal Reserve has benchmarked US growth at 2 percent to 2.2 percent this year, consistent with the latest International Monetary Fund estimate of 2.2 percent.

The IMF believes the US economy will grow 3.1 percent in all of 2015.

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