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US Commerce Department reported 2.1 per cent GDP growth for Q3

FXStreet (Mumbai) - The US Commerce Department on Tuesday said the gross domestic product grew at a 2.1 per cent annual pace in the third quarter, up from the initial estimated 1.5 per cent. When measured from the income side, the economy grew at a brisk 3.1 per cent clip, up from second quarter's 2.2 per cent pace. The U.S. economy expanded at a faster pace implying the economy remains on track to finish the year with modest growth. The GDP data suggested resilience that could further boost the Federal Reserve’s confidence to raise interest rates in December.

Government spending advanced at a 1.7% pace boosting GDP growth

Upward revisions to business spending on equipment and investment in home building boosted growth in Q3. Business spending on equipment was revised up to a 9.5 per cent rate from the earlier 5.3 per cent. Also, efforts by businesses to reduce an inventory bloat have not been as aggressive as estimated.

Businesses accumulated $90.2 billion worth of inventory in the third quarter as against the $56.8 billion reported last month. An upward revision for private inventories, which subtracted 0.59 further added to the GDP growth. Real final sales that measure the value of U.S.-made goods and services people and companies purchased at home and abroad, increased at a 2.7% pace in the third quarter.

The pace of consumer spending remained brisk. Consumer spending increased at a 3% rate in the third quarter, down from 3.6% pace registered in the second quarter. Strong spending on long-lasting goods led the recent gains in spending to move up.

Rising stockpiles boosted gross domestic product in the third quarter. It can however be a drag in the fourth quarter when those inventories are pulled down.

Growth in exports was revised to project a slower 0.9 rate of increase. However imports rose faster causing the trade deficit to subtracted 0.22 percentage point from GDP growth.

Lower corporate profits and decline in spending by energy firms hurt growth

Corporate profits after tax however fell at a 3.2% pace from the second quarter, the biggest drop since the fourth quarter of 2014. On a year-over-year basis however the corporate profit growth increased 1.4%, compared with 8.5% year over year growth in the second quarter. Investment in non-residential structures also declined at a 7.1 per cent pace, instead of the previous 4.0 per cent.

Also, energy firms cut spending sharply following a sharp fall in oil prices. This cut in spending continued to weigh on growth. Spending on mining exploration, wells and shafts also dipped at a 47.1 per cent rate compared to the 46.9 per cent pace reported last month.

Q3 GDP growth almost confirms December rate hike

The Fed had said depending on the data released till the fed’s meeting in December it will take a call on rate hike. The GDP data released today is the last significant data to be released before the December 15-16 meeting. The good third quarter GDP figure thus almost confirms the December rate hike. Job growth in October and strong domestic demand further backs the Fed’s motive to hike rates in December.

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