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US economy grows at fastest pace in two years

WASHINGTON — The United States economy grew at its fastest pace in two years in the third quarter, as a surge in exports and a rebound in inventory investment offset a slowdown in consumer spending.

US household purchases added 1.47 percentage points to GDP growth. Photo: Reuters

US household purchases added 1.47 percentage points to GDP growth. Photo: Reuters

WASHINGTON — The United States economy grew at its fastest pace in two years in the third quarter, as a surge in exports and a rebound in inventory investment offset a slowdown in consumer spending.

Gross domestic product increased at a 2.9 per cent annual rate after expanding at a 1.4 per cent pace in the second quarter, said the Commerce Department yesterday in its first estimate of economic growth. That was the strongest growth rate since the third quarter of 2014 and handily beat a forecast of a 2.5 per cent rise in a Reuters poll of economists.

Wall Street traded slightly higher after the data release, with the Dow Jones Industrial Average up 0.1 per cent at 18,183.82 at the opening bell. The US dollar was down 0.2 per cent at US$1.0920 versus the euro and little changed at ¥105.25. The report is the next-to-last snapshot of the world’s largest economy before Americans go to the polls on Nov 8. Americans will also get to gauge the economic health of the nation from the monthly unemployment figures, to be released on Nov 4.

Although the US Federal Reserve is mostly focused on employment and inflation, signs of economic strength would be supportive of an interest rate hike in December. The US central bank last raised its benchmark overnight rate target in December 2015 for the first time in nearly a decade. The Fed’s policy-making committee next meets on Nov 1-2, but economists see almost no chance of a rate rise at that meeting given how close it is to the presidential election.

Consumer spending, which accounts for more than two-thirds of US economic activity, still supported GDP in the third quarter, even as the pace slowed to a 2.1 per cent rise from the second quarter’s robust 4.3 per cent rate. The household purchases added 1.47 percentage points to GDP growth.

A surge in soybean exports to China and other economies helped to shrink the US trade deficit in the third quarter. Economists also noted that exports of capital and consumer goods have been growing strongly in recent months. Exports increased at a 10 per cent rate, the biggest rise since the fourth quarter of 2013. As a result, trade contributed 0.83 percentage point to GDP growth after adding a mere 0.18 percentage point in the April-June quarter.

Businesses increased spending to restock after running down inventories in the second quarter. They added inventories worth US$12.6 billion (S$17.6 billion) in the last quarter, contributing 0.61 percentage point to GDP growth. Spending on non-residential structures, which include oil and gas wells, increased at a 5.4 per cent rate in the third quarter, the fastest pace since the second quarter of 2014, after falling at a 2.1 per cent pace in the second quarter.

Business spending on equipment, however, dropped for a fourth straight quarter, slipping at a 2.7 per cent rate. While the pace of decline has been ebbing as oil prices stabilise and the US dollar’s rally gradually fades, a strong turnaround is unlikely in the near-term, said economists. AGENCIES

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