Consumer spending up weak 0.1 per cent in October

“We expect real GDP growth to hover around 2.0-2.5%QoQ saar in Q4 2015, underpinned by solid consumption growth”.

The 2.1 per cent GDP growth turned out to be higher than an initial estimate of 1.5 per cent, according to an agency report quoting the Commerce Department report.

Consumer spending, which accounts for more than two-thirds of USA economic activity, grew at a still strong 3.0 percent rate in the third quarter, down from the 3.2 percent rate estimated last month.

I’m not impressed with these revised numbers, and in fact I am more concerned than before because of the consumer spending revisions. Exports increased just 0.9%, while imports rose 2.1%.

When measured from the income side, the economy grew at a brisk 3.1 per cent clip, an acceleration from the second quarter’s 2.2 per cent pace.

The upward revision puts the U.S. economy on course to grow at least 2% in the second half.

There is a growing expectation that the Federal Reserve will decide at its December 15-16 meeting to boost interest rates for the first time in seven years. The improvement in inventory levels was offset by a slight downward revision in consumer spending last quarter. The report of the Commerce Department also showed corporate profits slumped while worker incomes rose. By contrast, imports, which represent a drag on GDP growth, increased 2.1 per cent as the stronger dollar kept import costs relatively low. Overall, economic growth has hovered around a modest 2% rate for the past several years, with no sustained breakout for the economy since the end of the recession in 2009.

Consumers appear relatively confident in the economy and may be poised to spend a decent chunk of their rising incomes during the holiday shopping season.

Mr. Clark projected vehicle production in the US would rise 3% next year, with Europe finally facing “a long runway of relatively moderate growth”. Data on Tuesday showing a smaller goods trade deficit suggested trade would contribute to fourth-quarter growth.

“You’re getting more growth in the third quarter, and perhaps that could come at the expense of less growth in the next couple of quarters”, said Jim O’Sullivan, chief USA economist at High Frequency Economics Ltd.in Valhalla, N.Y. Still, the backdrop for consumer spending remains positive, he said, as “the labor market is continuing to improve, which augurs well for wage income to accelerate”.

Growth in exports, which have been hurt by a strong dollar and sluggish global demand, were revised to show a slower 0.9 rate of increase. This sector has been hurt by the sharp fall in energy prices which has trigged big cutbacks at energy companies.

However, business spending on equipment was revised up to a 9.5 percent rate from a 5.3 percent pace. Fed officials are considering raising their benchmark interest rate as soon as next month, should data continue to indicate that the USA economy can withstand tighter monetary policy.