• Thu
  • Oct 2, 2014
  • Updated: 4:16pm
BusinessEconomy

Consumer and corporate spending boosts US growth

PUBLISHED : Saturday, 21 December, 2013, 1:47am
UPDATED : Saturday, 21 December, 2013, 3:00am

The United States economy expanded in the third quarter at a faster rate than estimated as consumers stepped up spending on services and companies invested more in software.

Gross domestic product grew at a 4.1 per cent annualised rate, the strongest since the last quarter of 2011 and up from a previous estimate of 3.6 per cent, Department of Commerce figures showed yesterday. The median forecast of economists surveyed projected a 3.6 per cent pace after 2.5 per cent in the second quarter.

Inventories accounted for a third of the gain, showing companies were confident about the prospects for demand. Stronger retail sales in October and November underscore the Federal Reserve's view that the world's largest economy is improving.

"You have equity markets supporting household net worth, rising home values and also payroll gains and falling unemployment, so we do really look for consumption to start picking up," said Robert Rosener, associate economist at Credit Agricole CIB. "This is a very good sign for momentum going into the fourth quarter."

Consumer purchases, which accounts for almost 70 per cent of the economy, increased 2 per cent, more than the previously reported 1.4 per cent.

Spending on services contributed 0.32 percentage point, up from a previously reported 0.02 percentage point. In addition to the pick-up in outlays for health care, Americans spent more on recreational services. Outlays for non-durable goods climbed at a 2.9 per cent rate, led by petrol.

Inventories increased at a US$115.7 billion annualised pace in the quarter, the most in three years, after a previously reported US$116.5 billion rate. In the second quarter, they rose at a US$56.6 billion pace.

Stockpiles added 1.67 percentage points to GDP last quarter, little changed from the previous reading.

While economists grew more optimistic about demand in the fourth quarter, GDP will nonetheless be restrained as the pace of inventory growth cools.

JP Morgan Chase projected the economy would grow 2 per cent from October to December, up from a previous forecast of 1.5 per cent. Barclays has raised its fourth-quarter tracking estimate to 2.3 per cent from 2 per cent.

Corporate spending on equipment rose 0.2 per cent in the third quarter, compared with a previous reading of no change. Business investment in intellectual property was revised up to a 5.8 per cent increase from 1.7 per cent, reflecting more spending on software.

Honeywell International, whose products range from cockpit controls to thermostats, expects capital expenditures of US$1.2 billion or more in 2014, up about 30 per cent from this year.

"We're very disciplined in terms of [expenditure]," chief financial officer David Anderson said. "We really have to see the whites of the eyes of the economic return characteristics to really commit."

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