US economy grew at 2 percent annual rate in 3Q

On the income side, however, the U.S. economy added an annualized 2.7% instead of the previously reported 3.1% due to the still strong consumer demand and decreasing inventories.

The Commerce Department says the economy, as measured by the gross domestic product, expanded at a 2% annual rate in the July-September quarter. Exports grew by just 0.7 percent, down from a previous estimate of 0.9 percent, while imports rose 2.3 percent.

That meant the change in inventories sliced off 0.71 percentage point from third-quarter GDP growth, instead of the 0.59 percentage point the government estimated last month.

The US economy grew at a fairly healthy pace in the third quarter as strong consumer and business spending offset efforts by businesses to reduce an inventory glut. Outlays at the federal level will grow 2.6 percent next year, the first gain since 2010, according to December 18 estimates by economists at Goldman Sachs Group Inc.in NY.

That was a sharp deceleration from the brisk 3.9% pace logged in the April-June period, however, growth remained around the economy’s long-run potential. The government revises its GDP estimates as new data comes in. Growth in the first quarter was depressed by an unusually severe winter and disruptions at West Coast ports.

A breakout in consumer spending in the world’s largest economy could help spur growth in the face of slowing demand outside the USA, but many consumers feel constrained thanks to modest wage growth and rapidly rising costs for essentials like shelter and medical care.

Growth in business spending on equipment was raised to a 9.9 per cent rate from a 9.5 per cent pace.

Household purchases, which account for nearly 70 percent of the economy, rose at a 3 percent annual pace, the same as previously estimated. Business investment on structures fell at a 7.2 per cent annual rate, slightly worse than previously thought, as cutbacks in oil and gas exploration hurt the energy sector. The dollar’s strength is still a major negative factor for many US-based multinationals, severely battered in the foreign markets, where the ongoing “currency wars” have significantly impaired the competitiveness of American goods and services. Real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, state and local government spending, residential fixed investment and exports that were partly offset by a negative contribution from private inventory investment.

Tuesday’s Commerce Department report validates the decision by Federal Reserve policymakers last week to raise a key short-term interest rate for the first time in almost a decade, he said.

With imports advancing at a slightly faster pace than reported last month, that left a trade deficit that subtracted a bigger 0.26 percentage point from GDP growth. Many economists foresee only three or four quarter-point rate hikes in 2016.