U.S. GDP Grows At 2%, As Government Comes To Rescue – ValueWalk Premium

U.S. GDP Grows At 2%, As Government Comes To Rescue

The U.S. economy grew two percent in the third quarter, arousing hopes and beating forecasts. The Gross Domestic Product, which represents the value of aggregate goods and services produced, rose at an annual rate of 2 percent. This marked an impressive increase from 1.3 percent in the preceding quarter. Economists surveyed by Bloomberg had averaged a 1.8 percent gain estimate for the third quarter. CIBC notes  it was the US government, rather than the consumer, that came to the rescue of an ailing economy in Q3, with a marked increase in federal spending contributing around 0.7%-pts to the 2.0% rate of overall GDP growth. Farm inventories remained a drag following the summer’s drought, while the detail also highlighted the expected redistribution of growth away from capital investment and exports, and towards consumer spending.

U.S. GDP Grows At 2%, As Government Comes To Rescue

This improved outlook, coupled with Americans’ increased confidence levels, was documented towards the end of September, and suggests that the economy is moving towards the right direction.

The expansion of the economy was fuelled by increased consumer spending. Impressive retail sales reports suggest that spending may exceed the current pace in the fourth quarter. Nonetheless, this will be dependent on the income growth and the fashion in which the fiscal cliff is addressed.

While consumers greatly contributed to restoring bullishness to the economy, it is the U.S. government that delivered the all important magic bullet. The third quarter was marked by a notable increase in federal spending, chipping in around 0.7 percent to the 2 percent rate of overall GDP. Nevertheless, government spending is expected to reduce in subsequent quarters, regardless of who secures the majority vote in the forthcoming presidential elections.

In addition to improved spending, residential investments also played an instrumental role in fueling the economy’s growth, signaling an eminent housing rebound. Residential investments in the third quarter rose at a rate of close to 15 percent, contributing just over 0.3 percentage points to growth. Protracted increases in building and increased sales of building materials indicate that housing will continue being a key driving force in subsequent quarters.

On the flip side, the U.S. recorded a decline in exports. This decline, coupled with widely flat imports, caused net trade to subtract 0.2 percentage points from growth. Similarly, there was a notable 1.3 percent rate of decline in non-residential fixed investments during the quarter. Overall growth was also stalled by the drought in the mid-west.

Alongside other highlights, it was noted that auto sales increased during the quarter, particularly in September. A study by Ward’s Automotive Group concluded that car and light trucks sold at an annual pace of 14.9 million during the month of September, signaling the strongest sales since March 2008.

Political impacts

This bullish economical outlook could have an impact on the upcoming Presidential elections. It comes barely two weeks ahead of the U.S presidential elections, slated for November 6th 2012, where Republican candidate Mitt Romney will face Democratic candidate Barrack Obama in the heated race to the White House.

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