US economic growth surges to 4.1% in Q3

The world's largest economy registered an impressive 4.1-per cent growth in the third quarter over the previous quarter, the highest rate since the fourth quarter of 2011, according to the revised estimate released by the commerce department yesterday.

The GDP growth is buoyed by stronger consumer spending and nonresidential investment than previously estimated. Consumer spending accounts for about 70 per cent of the country's economic activity.

The new figure is well above the preliminary estimate of 2.8 per cent and the subsequent revision of 3.6 per cent on the back of massive stock build up during the July-September period.

In the second quarter, the GDP increased 2.5 per cent.

The latest report is supportive of the government's decision three days ago to cut back its bond buying programme from $85 billion a month to $75 billion from January citing an uptick in the underlying momentum of broader economy. (See: Fed to cut bond-buying by $10 bn from January, keep rate unchanged)

The economic expansion in the third quarter was primarily due to increases in personal consumption, private inventory investment, nonresidential and residential fixed investment, exports and rise in state and local government spending.  These were partly offset by negative contributions from federal government spending and imports.

Personal consumption expenditures accelerated in Q3 recording a 2.0-per cent increase compared with an increase of 1.8 per cent in Q2, contributing 1.36 per cent to the GDP.

Overall goods increased 4.5 per cent compared with 3.1 per cent in the second quarter adding 1.06 per cent to the GDP. Durable goods increased 7.9 per cent from 6.2 per cent. Growth in services was lower at 0.7 percent, compared with an increase of 1.2 per cent in Q2.

Private domestic investment was up 17.2 per cent in the third quarter from 9.2 per cent in Q2, contributing 2.6 per cent to the GDP. Residential investment grew 10.3 per cent in Q3 compared with 13.4 per cent, while nonresidential fixed investment increased marginally to 4.8 per cent from 4.7 pre cent in the previous quarter. Private inventories contributed 1.7 per cent to the GDP.

Exports improved 3.9 per cent during the quarter down from 8.0 per cent in the previous quarter, accounting for a contribution of 0.52 per cent to the GDP.

Imports rose 2.4 per cent in Q3, compared with 6.9 per cent in Q2, making a negative contribution of 0.39 per cent to the GDP.

Federal government spending declined 1.5 per cent, compared with a decline of 1.6 per cent in the second, making a negative impact of 0.11 per cent on the GDP.

Defence purchases were marginally down by 0.6 per cent in Q3 compared to a 0.5-per cent decrease in the June quarter, subtracting 0.02 per cent of the GDP.

State and local government consumption expenditures and gross investment increased 1.7 percent, compared with an increase of 0.4 percent in Q2 adding 0.19 per cent to the GDP.

Corporate profits increased 1.9 per cent in Q3, down from 3.3 per cent in the previous quarter.

According to some analysts, economic growth in the current quarter is looking weaker partly due to an expected drag in inventories. However, with improved job market and an anticipated recovery in the global economy, the situation could further improve in the near term.

The country's unemployment rate fell much more than expected - from 7.3 percent in October to 7 percent in November, the lowest level in five years, evidence that hiring is improving across the country.

In its latest forecast this week, the Federal Reserve projects the US economy to grow 2.2-2.3 per cent this year and 2.8-3.2 per cent in 2014.

Other economists also predict a sustained 3 per cent growth path by the second quarter of next year. (See: US growth to ramp up by mid-2014)