U.S. economy outpaced expectations in the third quarter


Despite the damage caused by hurricanes Harvey and Irma, Commerce Department data released Friday shows that the U.S. economy expanded at a faster pace than was forecast in the third quarter.

The fallout from the hurricanes, which inflicted extensive damage on parts of Texas and Florida, was mixed, according to a report in Bloomberg. However, that effect is likely to be transitory, as economic activity is expected to rebound when rebuilding efforts being in earnest.

Consumer spending, which accounts for about 70 percent of the economy, added 1.6 percentage point to growth last quarter. One of the driving factors was motor vehicles sales, which rose as Americans replaced cars damaged by the storms. On the other hand, services spending slowed to the weakest pace since 2013. Even so, a steady job market, contained inflation, and low borrowing costs should help households sustain their spending.

The country’s GDP also showed continued strength in business investment, which indicates that growth is affecting sources beyond household consumption. Overseas markets are also improving, which should help boost exports and contain the trade deficit.

A decline in investment in structures probably reflects the damages from Hurricane Harvey, especially on oil and gas drilling.

With builders facing a shortage of qualified labor and ready-to-build lots, sales are being held back by a shortage of available properties, and this is driving up prices.

Price data in the GDP report showed inflation picked up while still lagging the Federal Reserve’s 2 percent goal. Excluding food and energy, the Fed’s preferred price index — which is tied to personal spending — rose at a 1.3 percent annualized rate last quarter, following a 0.9 percent gain, according to the Bloomberg report.

The central bank and many economists expect GDP growth to slow beyond 2018, moving closer to 2 percent rather than the sustained 3 percent pace that the Trump administration predicts will happen if its tax plan is enacted.

“It’s hard to confidently discern the hurricane effects in this report, but the economy seems to be on pretty solid ground,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The details are reasonably solid. Consumers stepped down a little from the second quarter but their spending still expanded at a decent pace.”

The gain in equipment investment shows “businesses may be getting a little more confident about the expansion, both here in the U.S. and abroad,” he said. Overall, the report “probably gives a little more confidence to the Fed to hike rates before year-end, but I don’t think it’s a game-changer.”

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