US GDP grows at fastest pace in two years in the third quarter, although durable goods orders disappoint

 
Jasper Jolly
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President Barack Obama has overseen a gradual GDP rise (Source: Getty)

The US economy grew faster than previously thought in the third quarter of 2016, to post the fastest rate of quarterly growth in two years.

The annualised GDP growth rate was 3.5 per cent in the third quarter, according to revised data from the US Department of Commerce.

The upgrade in the measure was driven by non-residential fixed investment, personal consumption expenditures, and state and local government spending.

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Strong corporate profit growth drove the increase in GDP, rising by $117.8bn in the third quarter, in contrast to a decrease of $12.5bn in the second quarter of the year.

However, the strong GDP figures were undermined by a marked decrease in durable goods orders in November. Orders fell by 4.6 per cent – an $11bn decrease – from a 4.8 per cent increase in October, according to the US Census Bureau.

Durable goods orders had increased for four months in a row before November.

Paul Ashworth, chief North American economist at Capital Economics, expects the economy to keep on showing improvement. He said: “The data releases over the next couple of weeks should be generally positive.

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“Our calculations point to a slightly stronger 200,000 gain in non-farm payroll employment in December. But owing to a rebound in the labour force, the unemployment rate probably ticked back up to 4.7%.”

Strong data will be important for the Federal Reserve, which has pointed to the strength of the US economy in support of its December interest rate hike.

The “dot plot”, which charts the interest rate expectations of the Federal Reserve’s Open Market Committee, has shown a hawkish move in recent weeks towards tighter monetary policy. However, declining durable goods orders could be a corrective to that movement.

Dennis de Jong, managing director at UFX.com, said: “Durable goods orders are well down on last time out and inflation could be a real concern in the not too distant future. With the incoming president’s fiscal policy largely yet to take shape, a period of cautious optimism will likely remain for some time.”

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