News Column

Stronger Business, Consumer Spending Boosts US Growth

Nov. 29, 2012

Patrice Hill

The nation's economy grew at a stronger pace of 2.7 percent in the summer quarter -- significantly faster than the 2 percent originally estimated, the Commerce Department reported Thursday morning.

The higher growth was due to a stronger performance in exports and more business spending on inventories during the July-to-September period. Also boosting the economy was a robust 14.2 percent increase in housing investment, an 8.7 percent jump in consumer spending on cars and other big-ticket items, and a whopping 12.9 percent surge in defense spending, the department said.

The jump in growth, which more than doubled the 1.3 percent pace set in the second quarter, reflected a strengthening trend in the economy that started during the summer, driven largely by a revival of consumer spending and the reawakening of the housing market after a long, five-year slumber, economists said.

"U.S. economic numbers appear to be on an upswing," said David Kelly, chief global strategist at J.P. Morgan Funds.

While the economy currently is experiencing a temporary setback because of Hurricane Sandy and the uncertainty over the budgetary "fiscal cliff" talks in Washington, Mr. Kelly and other economists expect the improving trend to re-emerge next year once the budget matters are resolved.

The summer's 2.7 percent pace of expansion "is set to be the best we will see for a while" until after the budget fight is over, said Chris Williamson, chief economist at Markit. He noted that consumers are rising to their role as the main engine of growth for the economy.

"Consumers look likely to help sustain economic growth as we move towards the end of the year, with confidence surveys showing the mood to be the most buoyant seen for around five years," even as businesses hold back spending because of uncertainty over the fiscal cliff, he said.

Harm Bandholz, economist at Unicredit Market, said much of the improvement in growth seen in the department's revision of third-quarter economic output was due to inventory buildup by businesses. Since those inventories will have to be worked off, that is likely to lower growth during the current fourth quarter of 2012, he said.

But he is optimistic that growth will resume at a stronger pace next year.

"Looking beyond the near-term volatility, caused primarily by the fiscal policy debate, we expect growth to pick up again substantially in the spring of 2013," he said.

At that point, businesses will stop holding back on hiring and investment, as they are currently, and will rejoin the expansion, possibly with a burst of "pent-up demand," he said.

Distributed by MCT Information Services

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Source: (c) 2012 The Washington Times (Washington, DC)

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