Evidence that the US recovery is gaining pace came in the shape of the annualised Q3 growth figure which came in at 2.8%. The value is a preliminary measure and will be adjusted, if necessary, when more data becomes available. The figure builds on the Q2 reading of 2.5%, lending support to the idea that economic momentum is building up – of course the real test of this will be when the unemployment figures improve significantly.
Signs within the economy remain conflicting. A major driver for growth is consumer spending as domestic demand is responsible for 70% or so of US economic activity. However, the growth in consumer spending has slowed from 1.7% in Q2 to 1.5% in the third quarter.
American politicians have scored some own goals this year which analysts believe has reduced the nation’s GDP. The year started with the Fiscal Cliff drama which involved a $2.8 billion tax hike, estimated to reduce consumer income by an average of 1.8%. Failure to agree on spending cuts then led to the Sequester which forced a raft of automatic spending cuts on the economy. More recently, political wrangling led to a partial government shutdown (delaying the release of the Q3 figures by a week) and led up to the edge of the abyss when discussions over raising the debt ceiling went down to the wire.
Q3 growth was bolstered by better export figures, an increase in home construction and businesses restocking. Build-up of inventories was estimated to have contributed 0.8% to GDP. Such an inventory build-up means that goods have been produced, but not yet sold to the end user – in some economic circles; this type of growth would be referred to as “froth”, since it requires consumers to actually buy it before real demand has been generated.