U.S. Economy Grew Less Than Previously Estimated in Third Quarter
The U.S. economy grew less than previously estimated in the third quarter, with new Commerce Department figures reflecting a smaller gain in consumer spending.
Gross domestic product climbed at a 1.8 percent annual rate in the third quarter, down from the 2 percent estimated last month, the Commerce Department showed today in Washington. Household purchases increased at a 1.7 percent rate, according to today’s report, down from an earlier estimate of 2.3 percent.
However, the economy has picked up this quarter as manufacturers rebuild depleted inventories, consumer spending gets a boost from the holiday shopping season, and the job market shows significant improvement.
“The fourth quarter should be the strongest of all this year,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. “We are avoiding a recession and the persistent calls for a double dip are wrong.”
Nevertheless, the threat of government cutbacks, the possible expiration of a payroll tax cut that saved the average American $1,000 in 2011, and fallout from financial turmoil in Europe remain obstacles for expansion heading into 2012.
The smaller gain in consumer spending, which accounts for roughly 70 percent of GDP in the U.S., reported by the Commerce Department today reflects a drop in outlays on healthcare that was previously reported as an increase. Health services spending reduced GDP by 0.1 percent in the third quarter, compared with the 0.6 percent contribution initially estimated.
However, more recent economic data will likely trump the third quarter report, which covers the June through September period, as jobless claims decline and household spending climbs.
The number of applications for unemployment benefits unexpectedly dropped last week, declining by 4,000 jobless claims to 364,000, the fewest since April 2008. The unemployment rate fell to a more than three-year low of 8.6 percent in November, Labor Department figures showed earlier this month.
Meanwhile, figures show households have become more willing to buy big-ticket items. Sales of cars and light trucks advanced at a 13.6 million seasonally adjusted annualized rate in November, the best since August 2009, according to researcher Autodata Corp. Spending during the Thanksgiving weekend jumped 9.1 percent per customer from a year earlier to an average of $398.62, according to the National Retail Federation. Sales totaled a record $52.4 billion.
Stockpiling could also boost fourth quarter growth, as fewer stockpiles this quarter, coupled with increasing demand, put producers on track to increase output. Inventories subtracted 1.4 percentage points from third-quarter growth. Excluding inventories, gross domestic product would have advanced at a 3.2 percent annual rate.
Today’s report also showed corporate profits to have risen less than previously estimated in the third quarter. Corporate earnings grew 1.7 percent and were up 7.5 percent from the same time last year, downwardly revised from 2.1 percent and 7.9 percent, respectively.
Savings were also shown to have dropped to 3.9 percent from 4.8 percent in the prior three months, which means Americans were likely spending more, a trend that will likely be shown to have continued throughout the current quarter. However, after-tax incomes adjusted for inflation did decrease at a 1.9 percent annual rate, the biggest drop since the third quarter of 2009, which would account for some, if not all, of the decline in savings.