US GDP growth revised higher

WASHINGTON: The US economy grew at a record pace in the third quarter, fuelled by more than $3 trillion in pandemic relief, the government confirmed yesterday, but appears to have lost momentum as the year drew to an end amid raging new Covid-19 cases and dwindling fiscal stimulus.

The economy plunged into recession in February and remains 3.4 per cent below its level at the end of 2019. The United States is struggling with a resurgence in new coronavirus cases, with more than 17.78 million people infected and over 317,800 dead, according to a Reuters tally of official data.

State and local governments have re-imposed restrictions on businesses, undercutting consumer spending and unleashing a fresh wave of layoffs. The grim situation has been worsened by Congress’ delay in providing additional fiscal relief for struggling businesses and the unemployed.

“A few tenths more growth in the third quarter won’t be nearly enough with the shutdowns and restrictions from Covid-19 likely to take a heavy toll on the economy this winter,” said Chris Rupkey, chief economist at MUFG in New York. “The only good news is that corporate profits are rebounding more quickly than expected ... more profits mean that companies will not have to lay off as many workers.”

Gross domestic product rebounded at a 33.4pc annualised rate last quarter, the Commerce Department said in its third estimate of GDP. That was revised slightly up from the 33.1pc pace reported last month and reflected more robust consumer and business spending than previously estimated.

The economy contracted at a 31.4pc rate in the April-June quarter, the deepest since the government started keeping records in 1947. Economists polled by Reuters had expected third-quarter GDP would be unrevised at a 33.1pc rate.

Twenty-one industries led by the automobile sector contributed to GDP growth last quarter. Mining was the only drag, likely because cheaper oil weighed on businesses spending on residential structures like gas and oil well drilling.

Congress on Monday approved a rescue package worth almost $900 billion, which will see direct payments made to most Americans and provide enhanced payments to unemployed people. It will expand a small-business lending program and steer money to schools, airlines, transit systems, and vaccine distribution.

Though the additional stimulus will provide some cushion, economists said it was insufficient and a bit too late, noting that the package excluded aid for states and locals governments, whose budgets have been squeezed by the pandemic.

US financial markets were little moved by the data.

After-tax profits without inventory valuation and capital consumption adjustment, which corresponds to S&P 500 profits, rebounded at a 36.1pc rate in the third quarter, revised down slightly from the 36.6pc pace estimated last month.

When measured from the income side, the economy grew at a 25.8pc rate in the last quarter, rather than the 25.5pc pace estimated in November. Gross domestic income (GDI) contracted at a rate of 32.6pc in the second quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at 29.6pc rate in the July-September period. That was revised slightly up from the previously reported 29.2pc pace and followed a 32.0pc rate of decline in the second quarter.

Consumer spending, which accounts for more than two-thirds of US economic activity, led the broad recovery last quarter, accelerating at a 41.0pc rate, rather than the previously estimated 40.6pc pace.

But consumption appears to have since cooled, with retail sales declining in October and November as household incomes came under pressure amid the expiration of a government-funded weekly unemployment subsidy.

First-time applications for weekly unemployment benefits are at a three-month high. Labour market stress and depleted household income have led to GDP growth estimates for the fourth quarter of around a 5pc rate. Most economists expect modest growth or even a contraction in the first three months of 2021.




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