Initial estimates of economic growth are usually based on partial economic data such that they can be released promptly. This means that the initial figure remains subject to further correction once the reporting body is in possession of more comprehensive data. Naturally, the initial estimates can over-estimate or under-estimate the actual economic activity during any given quarter, but they are usually close to the final values.
The US Bureau of Economic Analysis has revised its initial estimate of US economic growth for the third quarter of this year upwards from an initial value of 3.5 to 3.9% (on an annualised basis). The US economy is the largest in the world and the revision will be welcomed by analysts concerned about sluggish global demand. The US economy has now enjoyed its best two consecutive quarters of growth since 2004.
Approximately 70% of US output is consumed within the domestic market. Analysis shows that better than anticipated consumer demand was the driver for the improved figure. Consumer spending was revised upwards from a 1.8 to 2.2% increase over the Q2 level.
The US economy had struggled at the start of the year as a consequence of a particularly hard winter (and knock-on effects of the closure of the government over a political inability to agree and pass the budget at this time last year). As anticipated, the inertia of the US recovery was sufficient to overcome the economic setbacks of the first quarter.
In a separate development, the Case Shiller housing index which follows the price of individual family homes in 20 US cities, reported a 4.9% year-on-year increase.
Invariably, better US economic data stimulates the debate about when the Federal Reserve will increase interest rates from their current historical low values. In the absence of inflationary risk, there is no need to do this unless the Fed believes that the economy may be “over-heating”, but some pundits are now speculating that rates may rise by the end of March 2015. Time will tell.