US GDP revision confirms strengthening recovery

Posted on November 29, 2016

US growth heated up more than initially thought in the third quarter, underscoring a brightening American economy after a disappointing start to 2016.

The world’s biggest developed market grew at an annualised rate of 3.2 per cent in the third quarter, according to a second reading of gross domestic product from the commerce department. That compares with Wall Street estimates of 3 per cent and an initial reading of 2.9 per cent.

The data released on Tuesday confirm that the economy expanded in the third quarter at the fastest rate in two years, representing a sharp pick-up from the 0.8 per cent and 1.4 per cent pace logged in the first and second quarters, respectively.

Consumption growth, a key element of US economic output, was revised higher to a 2.8 per cent pace, from the previous reading of 2.1 per cent.

The economy also benefited from a sharp rise in exports, a rebound in business investment in inventories and an increase in spending by the federal government, the commerce department said.

The upbeat data come ahead of next month’s Federal Reserve meeting, in which the central bank is broadly expected to increase its benchmark rate for the first time in 2016.

Treasuries, which have sold off sharply since the presidential election on November 8, declined on the heels of Tuesday’s report. The 10-year yield rose 3.2 basis points (0.032 percentage points) to 2.344 per cent, while the policy-sensitive two-year yield was up by 1.8 bps to 1.11 per cent.

US President-elect Donald Trump has vowed to try to boost the pace of growth further through a combination of fiscal stimulus and lower taxes. Wall Street economists have since the election marked up their forecasts for growth in 2017 and 2018 to 2.2 per cent, from 2.1 per cent, according to Bloomberg surveys.

However, economists have also warned that Mr Trump’s protectionist trade stance could damp those positive effects.

“New restrictions on trade and immigration would damage global supply chains and likely lift domestic prices. They also could damp business investment,” JPMorgan chief economist Bruce Kasman said.

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