US Q3 economic growth revised down

Fairfax Media

SLOW RECOVERY: The US economy grew more slowly than first thought in the third quarter, but house prices rose for the fifth month, suggesting a slow economic recovery is still intact.

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The US economy grew more slowly than first thought in the third quarter, but house prices rose for the fifth month in September and US consumer confidence was up in November in data published, suggesting a slow economic recovery is still intact.

The US Commerce Department's second estimate of third quarter economic output, published on Tuesday, showed growth at a 2.8 percent annual rate, rather than the 3.5 percent pace it estimated last month.

It was still the fastest pace since the third quarter of 2007, reflecting government fiscal stimulus, but slightly less than expectations for a growth pace of 2.9 percent.

The return to growth in the third quarter, after four straight quarters of declining output, probably ended the most painful US recession in 70 years. The economy contracted at a 0.7 percent rate in the April-June period.

Gross domestic product growth was constrained by consumer spending that was not as robust as first thought, and by strong imports and weak investment in commercial buildings. But corporate profits surged as businesses raised output even as they were cutting payrolls.

"This will be a muted, slow recovery and it will be strewn with setbacks," said T.J. Marta, chief market strategist at Marta on the Markets. "I don't have a lot of high hopes."

US stocks opened lower, while Treasury debt prices rose slightly after the report was released.

US DEMAND SATED BY IMPORTS

An upward revision to US imports was one factor behind the softer than previously reported GDP figures, showing more domestic demand was sated by overseas production.

Imports jumped at 20.8 percent annual rate, the biggest gain since the second quarter of 1985, instead of 16.4 percent. They knocked 2.53 percentage points off the change in GDP.

Another drag came from the construction of nonresidential structures, which dropped at a 15.1 percent pace rather than 9 percent, as previously reported, highlighting the problems in the commercial property market and shaving just over half a percentage point off GDP growth.

Consumer spending, which normally accounts for more than two-thirds of US economic activity, rose at a 2.9 percent rate, instead of the 3.4 percent pace reported last month. It was the biggest rise since the first quarter of 2007 and represented a turnaround from a 0.9 percent second quarter fall.

Businesses also reduced inventories at a slightly faster rate than had been anticipated. While that revision trimmed third quarter GDP growth, analysts said it helps lay the groundwork for future production.

"That sets up for a better fourth-quarter GDP with more restocking," said John Canally, economist at LPL Financial in Boston.

Excluding inventories, GDP rose at a 1.9 percent rate instead of 2.5 percent. That marked a pickup from the 0.7 percent pace in the second quarter, but showed demand was somewhat lackluster.

After-tax corporate profits grew 13.4 percent in the third quarter, the largest gain since the first quarter of 2004 and more than double what markets had expected.

The strong profit growth reflected deep cost-cutting by companies, mostly headcount reduction, to deal with tepid demand.

Home building activity rose at a 19.5 percent rate in the third quarter, below previous estimates of 23.4 percent. It was the first time home construction contributed to GDP since 2005.

HOUSING MARKET RECOVERING TOO

A separate report on Tuesday showed US home prices rose for a fifth straight month in September, the latest sign of stability in a sector that was at the heart of the recession.

The Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas rose 0.3 percent in September. Analysts said a tax credit for first time homebuyers helped support the market.

The 20-city index had an annual decline of 9.4 percent.

"We have seen broad improvement in home prices for most of the past six months," David M. Blitzer, chairman of the Index Committee at S&P, said in a statement. "However, the gains in the most recent month are more modest than during the seasonally strong summer months."

The national index for the third quarter increased 3.1 percent from the prior quarter, the same as in the second quarter, resulting in an 8.9 percent annual drop. That was a significant improvement from the 14.7 percent annual downturn reported in the prior quarter and 19 percent slump

The November extension of the $US8,000 ($NZ11,148) first-time homebuyer tax credit, and the addition of a $US6,500 credit for move-up buyers, should support home sales and prices in coming months, economists said.

CONSUMER CONFIDENCE UP

US consumer confidence edged higher in November after an unexpected drop in October, with less consumers expressing doubt about the a worsening jobs market, according to a report from the US Conference Board.

The Board's index of consumer attitudes increased slightly to to 49.5 in November from 48.7 in October.

Analysts polled by Reuters had forecast a reading of 53.1, matching the previous month's figure.

- Reuters