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US economy expands at 4.9% in Q3

Analysis

The US economy grew at an annual rate of 4.9% in the Q3, the fastest pace in four years, the Commerce Department reported Thursday.

The revised Q3 reading for real GD  was unchanged from the estimate a month ago. In the July-to-September quarter, consumer spending, which accounts for two thirds of overall economic activity, rose at an annual rate of 2.8%, an improvement from the 1.4% growth rate in the Q2. Businesses boosted their spending on equipment and software at a 6.2% pace, up from a 4.7% growth rate in the Q2. Exports of goods and services were up at a 19.1% rate, marking the biggest jump since the final quarter of 2003, while imports of goods and services increased 4.4%, in contrast to a decrease of 2.7% in the Q2. Meanwhile, government spending in the Q3 rose at a rate of 3.8% after an increase of 4.1% in the Q2.

However, business investment in commercial structures, such as office buildings and factories, grew at a 16.4% pace in the third quarter, down from the 26.2% rate in the Q2. Residential fixed investment dropped 20.5%, compared with a decrease of 11.8% in the Q2. "Core" prices, which exclude volatile energy and food and are an inflation gauge closely watched by the Federal Reserve, rose at a rate of 2.0% in the Q3, up from a 1.4% pace in the Q2. The new inflation reading was higher than a 1.8% growth rate estimated a month ago. The brisk 4.9% growth pace in the Q3 came after a credit crunch stemming from troubles in the high-risk subprime mortgage market, which offers loans to people with lower credit and income, plunged the housing market deeper into turmoil.

Analysts say that the faster-than-expected growth pace suggests that the economy has been resilient and holding up well so far to the strains in the housing and credit markets. Still, the current housing slump, the worst in two decades, could remain a drag to the economic growth well into next year, they believe. Their worry is that consumer spending and business investment could be affected seriously by the housing slump and credit crunch. While many analysts are hopeful the economy can avoid a recession, growth in the final quarter of this year is expected to slow to a pace of just 1.5% or less. GDP measures the value of all goods and services produced within the United States. (people.com.cn)

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