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US economy exceeds forecasts in Q3

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US economy exceeds forecasts in Q3

The US economy accelerated at a faster pace than expected last quarter, according to the Commerce Department. Gross domestic product expanded at an annualized rate of 2.8 percent, much higher than the 2 percent growth forecasted by economists.

Gross domestic product is the value of all goods and services produced in the economy. It is the most closely watched indicator of growth. Economists’ estimates ranged from 1.2 percent to 3 percent, but the general consensus was “The economy was a bit slower than in the prior quarter,” according to Stuart Hoffman of PNC Financial Services.

Inventories increased at the fastest rate in more than a year, which might cause the scaling back of production in the fourth quarter. Household spending and business investment cooled, likely in anticipation of the federal government shutdown. Household spending grew 1.6 percent, adding one percentage point to GDP growth. Household consumption accounts for around 70 percent of economic activity.

While forecasts mostly under-stated the growth rate, the world’s largest economy probably cooled toward the end of the quarter, as Americans braced for a prolonged federal budget impasse. The 16-day government shutdown that began in the fourth quarter shed some-$24 billion from the US economy. Third quarter data showed government spending increased 0.2 percent, largely due to state and local outlays, while spending among federal agencies declined 1.7 percent.

Weekly jobless claims fell 9,000 to 336,000, according to the Labor Department. The partial shutdown slowed the pace of job creation to 125,000 last month, according to a median estimate of economists surveyed by Bloomberg. Government economists will release official nonfarm payroll data Friday.

“Growth is steady but not great,” said Jonathan Basile of Credit Suisse New York. Like other economists, Basile believes the shutdown will have a temporary but noticeable impact on fourth quarter growth. Heading into the final two months of the year, businesses will ramp-up to meet the demands of the holiday season. Whether this will be enough to offset the slowdown brought on by the budget impasse is yet to be seen.

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