Economy

GDP hits 3%, crushing estimates despite hurricanes

GDP hits 3%, crushing estimates despite hurricanes”

While that represented a slowdown from the second quarter's annual growth of 3.1 per cent, third-quarter annualised growth came in far above consensus expectations of 2.5 per cent, according to preliminary figures from the US Bureau of Economic Analysis (BEA).

President Trump took office vowing to return the United States to sustained three percent annual GDP growth or better, but economists say this is unrealistic.

Though only a preliminary estimate, the result handily overshot analyst estimates, which had called for a result of 2.4 percent - showing the U.S. had easily absorbed the shocks of Hurricanes Harvey, Irma and Maria, which badly interrupted economic activity and in Texas and Florida and laid waste to the island territory of Puerto Rico.

"Despite the first estimate of US GDP for the third quarter showing a strong print, the reality is quite different".

Growth from April through June was 3.1%.

Paul Ashworth, chief USA economist at Capital Economics, said: "GDP growth for 2017 as a whole is now tracking at around 2.1% and, assuming we see a modest fiscal stimulus in early 2018, we expect GDP growth to accelerate to 2.5% next year, even after allowing for a more aggressive pace of monetary tightening".

Harvey made initial landfall in Texas on August 25, and Irma hit Florida on September 10. Government spending was also up after the hurricane. The strong economic growth will bolster arguments of Federal Reserve officials who want the central bank to raise interest rates again in December. Economists think growth may be over 3% in the fourth quarter due to rebuilding from the storms.

The modest slowdown in the pace of growth primarily reflected decelerations in consumer spending, non-residential fixed investment, and exports that were partly offset by an acceleration in private inventory investment and a downturn in imports. Over the past few years, a 3% growth rate in a one quarter would typically be followed by a 1% rate in the next three-month period. As a result, inventory investment contributed 0.73 percentage point to third-quarter GDP growth, after adding just over a tenth of a percentage point to output in the prior period.

Other areas of the report showed weakness. Residential construction fell at a 6 percent rate following a 7.3 percent rate of decline in the second quarter. Goods imports, though, fell by 0.5 percent in this release, the first decline since the first quarter of 2016. That left a smaller trade deficit, leading to trade adding 0.41 percentage point to GDP growth.

The House on Thursday gave approval to a Republican-proposed budget that would provide for $1.5 trillion in tax cuts over the next decade. Democrats and many private economists have challenged that forecast.



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