By: Dr. Mike Campbell
Over recent months, the majority of economic indicators have suggested that the US economy was slowing. A slowing economy and stubbornly high unemployment were the main reasons behind the Federal Reserve’s decision to inject a further $600 billion into the economy between now and June 2011.
However, data for Q3 has led to an upwards revision of the Q3 growth figure from 2% to 2.5%. The Q2 growth was itself revised upwards to a final figure of 2% (from 1.7%) and this suggests that the US economy is accelerating rather than slowing down. Analysts had been predicting an upwards revision of the Q3 performance to 2.4%, but the actual figure exceeded expectations.
The improved Q3 performance has been attributed to increased spending by US consumers on high value goods such as cars and other “big ticket” items. Domestic consumption is responsible for something like 70% of US economic output. Another factor that helped to improve the performance was better than expected export activity as the effect of the lower Dollar helped to boost the sector.
Despite this more positive snapshot of the US economy, the Federal Reserve has downgraded its assessment for growth in America next year. The original forecast predicted that growth would lie between 3.5 and 4.2%; the new figures suggest that it will come in between 3 and 3.6%. They expect that inflation will continue to fall and that unemployment may trend higher than its current 9.6% level. The predictions have emerged after the minutes of the latest Federal Reserve policy committee meeting were released.