Unlike the seventh game of the World Series, the debate over the US economy’s strength sometimes seems like a playoff competition that goes on forever between skeptics and believers. However, on Thursday, the boosters won at least a temporary victory with a government report that estimated the nation’s economic output rose at a healthy 3.5 percent annual rate in the third quarter.
After an even faster pace of growth in the spring, the higher-than-expected advance in GDP was driven by gains across the board, bolstered by an unusual burst of military spending and a more favorable trade balance.
“This is the strongest six-month interval we’ve had in 10 years,” Northern Trust Co chief economist Carl Tannenbaum said. “The pace of the expansion has clearly increased.”
Many forecasters expect the economy to continue to advance at a roughly similar pace, which should help the unemployment rate to keep falling.
“I don’t think it’s going to be hard to maintain a growth of 3 percent for the fourth quarter,” Tannenbaum said.
However, any conclusions about the economy’s path are preliminary. Government statisticians will revise Thursday’s figure twice, first in November and then in December. Based on past experience, the final measure of growth could end up changing as much as a percentage point in either direction, according to Pantheon Macroeconomics.
In the meantime, skeptics pointed to some troubling signs. Consumer spending, though up 1.8 percent, was weaker than some economists had hoped given the recent job growth. They had expected lower and middle-income families to spend money they saved from falling gas prices and wealthier households to spread around their profits from the stock market.
“The components may not be as strong as the headline number shows,” Oppenheimer Funds chief investment officer Krishna Memani said.
The housing sector registered only a 1.8 percent gain, down from last quarter’s 2.5 percent rise. And military spending, which jumped a whopping 16 percent, is notoriously volatile. Still, for nearly two years, government austerity has been a drag on the economy, and the 10 percent growth in federal spending this quarter reversed that trend, at least for now.
A greater worry for many economists is how Europe’s anemic growth affects the US economy. They fear that European policymakers and the European Central Bank are not doing enough to stimulate their sluggish economies.
IHS chief economist Doug Handler predicted real growth for all of this year to be only 2.2 percent — below the US’ long-term average growth rate of 3 percent.
All in all, those who are upbeat about the economy could add several points to their scorecard this week. The US Labor Department said on Thursday that new claims for unemployment insurance benefits remained low. The four-week moving average was 281,000, a 14-year low and down from 352,500 a year ago.
And a report from the Conference Board showed that the consumer confidence index reached a seven-year high last month. That positive outlook combined with continued low gas prices could help push up consumer spending during the holiday season.
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