US GDP grows 3.9% in Q3, raising expectations of rate hike

WASHINGTON — The United States economy grew more than earlier estimated in the third quarter, giving the country its strongest six months of expansion in more than a decade and boosting expectations that the central bank will start to raise rates in the middle of next year.

Gross domestic product rose at a 3.9 per cent annualised pace in three months to September, the Commerce Department said yesterday, up from the 3.5 per cent growth it estimated last month, reflecting upward revisions to both business and consumer spending.

Economists had expected a downward revision to a 3.3 per cent gain.

“The US economy has clearly reasserted itself as the leading economy in the globe. I am pretty optimistic that the economy is doing well and will continue to do well,” said Mr Ward McCarthy, economist at financial services firm Jefferies in New York.

With growth having increased at a 4.6 per cent rate in the second quarter, the world’s largest economy has now experienced the two strongest back-to-back quarters of growth since 2003. It was the fourth quarter out of the past five that the economy has expanded above a 3.5 per cent pace.

Data ranging from manufacturing to employment and retail sales also suggest the economy retained some of that momentum early in the fourth quarter. The US remains a bright spot in an increasingly gloomy global economy, with Japan back in recession and growth in the euro zone and China both slowing significantly.

The brisk growth pace also suggests that the US Federal Reserve could start raising its federal funds target in the middle of next year.

The Fed has kept the key rate near zero since December 2008 and last month reiterated a promise to keep them there for a “considerable time”. However, it said rates would rise sooner if the US economy does better than expected.

Underscoring the strong fundamentals, consumer spending — which accounts for more than two-thirds of US economic activity — grew at a 2.2 per cent pace in the third quarter instead of the previously estimated 1.8 per cent rate.

Growth in business investment was raised to a 7.1 per cent pace from 5.5 per cent, with a stronger rate of spending on equipment than previously thought accounting for the bulk of the revision. AGENCIES