The US economy grew at a faster clip than expected of 3.1 per cent in the third quarter
The upward revision followed higher net exports and support from consumer and public spending
Economists were comforted by the data, but cautioned that it was unlikely to last long
The outcome of talks to avert the fiscal cliff will be critical for the US economic outlook
The US economy grew at a faster clip than expected of 3.1 per cent in the third quarter, according to the latest revision by the commerce department, putting it in a stronger position to withstand any shock from the looming fiscal cliff.
The figure was higher than the 2.7 per cent annualised growth previously estimated for the third quarter, and far more than the 1 per cent growth rate that was originally calculated by the commerce department two months ago.
The upward revision followed higher net exports, as well as support from consumer and government spending.
Economists were comforted by the data – which showed the US economy growing at its fastest since late 2011 – but cautioned that it was unlikely to last long. “This revision was a healthy one, driven by final sales, not inventories,” said Nigel Gault, chief US economist at IHS Global Insight. “But it overstates the economy’s momentum, and we expect growth of just below 1 per cent in the fourth quarter.”
Mr Gault added that the outcome of talks in Washington to avert the fiscal cliff – a $600bn contraction made up of tax rises and spending cuts due next year – would be critical for the US economic outlook.
“The longer the negotiations drag on – especially if they extend into January – the more the uncertainty will hurt consumer and business confidence, and willingness to spend. A timely resolution will help confidence, but we should not expect the economy immediately to spring to life,” Mr Gault said.
Last week, the US Federal Reserve showed it was not especially confident in the sustainability of the higher growth rate seen in the third quarter. It took the unprecedented step of tying rock-bottom interest rates to the jobless level, pledging not to raise rates until the unemployment rate falls to 6.5 per cent, as long as inflation does not rise above 2.5 per cent.
The US jobless rate is 7.7 per cent according to the latest data for November from the labour department.
The stronger data on growth on Thursday came amid encouraging figures from the housing sector. The pace of existing home sales rose by 5.9 per cent to a three-year high of 5.04m units in November from 4.76m units the previous month.
“With tightening supply and improving demand, the fundamentals in the US housing market are continuing to move in a very positive direction,” says Millan Mulraine of TD Securities.
“Notwithstanding these improving fundamentals, the housing rebound remains vulnerable to any disruption in the overall economic recovery in the near term, and any misstep on averting the fiscal could jeopardise the positive momentum in this crucial sector,” he added.
Meanwhile, weekly jobless claims rose by 17,000 to 361,000 – after a big drop the previous week. The more reliable measure of jobless claims, the four-week moving average, fell to 367,000 as a spike in claims in response to disruptions related to superstorm Sandy in November dropped out of the series.
“Looking through the volatility, it seems that the underlying pace of lay-offs has held fairly steady in recent months,” said economists at RBS in a note on Thursday. “That is certainly encouraging given the pullback in capital spending the last few months and the uncertainty surrounding the 2013 outlook, but as we have said repeatedly, it is the slow pace of hiring that is preventing better improvement in the labour market, not the current pace of lay-offs,” they added.