2.7 percent Economic growth outperforms estimates

Friday, November 30th, 2012 By

economic growth

The annual rate of economic growth was higher then economists expected in the third quarter. Image: doctorwonder/Flickr/CC BY-SA

According to the Commerce Department’s GDP report, the annual economic growth rate of the U.S.  rose to 2.7 percent in the third quarter of 2012. However, economists expect that growth to slow a bit before the end of the year.

Economic growth accelerating for the year

The annual economic growth was measured at only 1.3 percent in the second quarter of the year. The number more than doubled in the July through September period, in spite of relatively weak consumer spending. The main reason for that, economists say, is because businesses replenished inventories at a faster pace than previously estimated.

Government spending grew by 3.5 percent for the year, particularly in defense. New home construction also grew by 14.2 percent.

Expected to slow in current quarter

However, most economists believe that the growth rate will slow to below two percent for the October through December period. That is not considered fast enough growth to bring down the unemployment rate rapidly.

Part of the reason for that slowing, according to Paul Ashworth, chief U.S. economist at Capital Economics, is that companies are restocking more slowly now, having already built up their inventories.

Another reason for the predicted slowing, economists say, is the devastation of Superstorm Sandy in the Northeast. An additional factor could be concern over the so-called fiscal cliff, which kicks in on Jan. 1 unless Congress and the White House can work out a deal. Should those negotiations fail, the nation will face massive spending cuts as well as simultaneously increased taxes for all consumers.

Consumer spending is another matter. It slowed down slightly from the 1.5 percent marked at the end of the second quarter. It grew by 1.4 percent last quarter.

Consumer confidence five-year high

However, consumer confidence is higher than it has been in five years, according to the Conference Board. that increased confidence was evidenced by record holiday shopping over the weekend following Thanksgiving. And the negative effects of Sandy seem to have about run their course. The number of Americans making first-time unemployment claims dropped sharply for the second week in a row, following a spike immediately after the storm struck in late October.

If the Administration and Congress do come to terms on the fiscal cliff before the end of the year, economists say economic growth could accelerate much more rapidly in 2013.

Sources

CBS News
CBC
Daily Finance

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