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US economy picks up, grows 2pc in third quarter

PUBLISHED : Friday, 26 October, 2012, 9:00pm
UPDATED : Friday, 26 October, 2012, 9:19pm
 

The US economy picked up steam in the third quarter after a tepid second quarter, growing at an annual pace of 2.0 per cent as consumer spending and home sales rose, the government said Friday.

The better-than-expected GDP numbers came less than two weeks before the November 6 presidential election.

President Barack Obama and Republican nominee Mitt Romney remained locked in a tight race, with Obama’s fate tied in part to how voters judge his record in restoring economic growth.

The expansion in gross domestic product – a measure of the nation’s goods and services output – in the July-September quarter was bolstered by increases in household spending; federal government spending, mostly for national defence; and investment in homes amid an improving housing market, the Commerce Department reported.

Growth in part was offset by a severe drought that gripped the Midwest, reducing farm inventories and slashing 0.4 point from the growth rate.

The department’s first estimate for the third quarter was a bit stronger than the 1.9 per cent expected by most analysts.

Housing investment added 0.3 point to GDP growth, but that contribution was offset by a decline in exports amid a weakening global economy and a drop in inventories.

Still, growth remains below the pace of about 2.5 per cent analysts estimate is needed to significantly bring down high unemployment, currently at 7.8 per cent.

“Growth was fairly resilient, with inventories relatively unchanged,” said Christopher Vecchio, a currency analyst at DailyFX.

“Nevertheless, this is still not the stable recovery the Federal Reserve is looking for, as noted at their policy meeting this past week.”

Vecchio forecast the Fed would step up asset purchases when Operation Twist finishes in two months and the central bank would announce at its December meeting further stimulus measures.

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