By: Dr. Mike Campbell

Early estimates put the growth of the American economy in the quarter between June and September at 2.5%. However, as real figures have come in, this estimate has had to be trimmed back, revealing that the world’s largest economy grew by 2% in Q3.

The culprit behind the weaker figure was that re-stocking by businesses had been overestimated – again, this is bad news because it implies that demand is still weak. US domestic demand accounts for something like 70% of GDP, so another worrying fact in the data was that disposable income fell by 2.1% over the quarter, following a 0.5% decline in Q2. Perversely, the consumer spending was up by 2.3% (revised down from 2.4%) over the quarter; normally disposable income and spending go hand-in-hand – it may reflect the effect of bargains tempting consumers to put their hands into their pockets.

According to the Department of Commerce, corporate profits (after tax) increased by 3% in Q3, building on a 4.3% increase in Q2. The relatively weak position of the US Dollar no doubt helped US exports which were revised upwards to 4.3% (from 4%) and imports rose at 0.5% (down from an estimated 1.9%) which will have helped the balance of payments. US unemployment remains obstinately around the 9% mark.

A bipartisan group that had been charged with trimming $1.2 trillion from the deficit has failed to find an agreed programme. The committee was set up in the aftermath of the US debt ceiling crisis which almost saw the US default on part of its debts in the summer amid party political squabbling. In principle, the impasse will trigger an automatic cuts programme which will hack $1 trillion out of the defence and federal government budgets (about half coming from the military) in 2013, but there is political opposition to this.