By Agency Reporter

Wednesday, 24 Nov 2010

WASHINGTON: The United States economy grew at a 2.5 per cent annual rate in the third quarter, more than previously calculated, as companies increased shipments abroad and Americans boosted their spending.

According to Bloomberg‘s report on Tuesday, the revised increase in gross domestic product compares with a two per cent estimate issued last month and a 1.7 per cent rise in the second quarter, figures from the Commerce Department showed today in Washington.

Corporate profits grew last quarter at a slower pace and an increase in employee wages in the prior three months was almost twice as much as initially reported.

While gains in earnings are giving companies the wherewithal to hire, the pace of growth is failing to bring down a jobless rate hovering near 10 per cent. Unemployment along with a cooling of inflation as retailers such as Wal-Mart Stores Incorporation reduce prices underscore the Federal Reserve‘s decision to inject more money into the economy.

”This is still, by the standards of history, only a half- speed expansion,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto, who correctly forecast the revised increase in Gross Domestic Product. Inflation ”is very tame and 2.5 per cent growth is not fast enough to put Americans back to work by any extent.”

Tuesday‘s figures showed bigger gains in exports, consumer spending and business investment in new equipment than previously estimated.

Economists surveyed by Bloomberg News projected the growth rate would increase to 2.4 per cent, according to the median of 78 forecasts. Estimates ranged from two per cent to 2.9 per cent.

Stock-index futures held losses and Treasury securities maintained gains after the report. Futures on the Standard & Poor‘s 500 Index expiring next month dropped 1.2 per cent to 1,183.8 at 8.49am in New York.

The yield on the 10-year Treasury note, which moves inversely to prices, fell to 2.74 per cent from 2.80 per cent late on Monday.

Tuesday‘s report showed consumer spending, which accounts for about 70 per cent of the economy, increased at a 2.8 per cent annual rate in the third quarter, the fastest since the final three months of 2006.

The gain compares with a previously reported 2.6 per cent rise, and 2.2 per cent in the second quarter. The revision reflected an increase in purchases of used automobiles, the Commerce Department said.

Stock market gains, increased income and reduced debt may be allowing consumers to boost spending.

Employers added 151,000 workers to their payrolls in October, the first rise in five months. Measures of hours worked and wages also increased, according to Labour Department data.

Tuesday‘s report also showed that in the second quarter, wages and salaries increased by a revised $97.4bn from the first three months of 2010, compared with $51.1bn initially reported.

The figures incorporate new, more comprehensive data from the Labour Department and may help support the biggest part of the economy in coming months.

Corporate profits rose 2.8 per cent in the third quarter after a three per cent increase the second three months of the year, today‘s report showed. Earnings were up 28 per cent from the same time last year.

Payroll increases may need to accelerate to bring down the unemployment rate, which held at 9.6 per cent last month.

Economists surveyed by Bloomberg earlier in November forecast the jobless rate will average 9.3 per cent in 2011, making for a third year of rates over nine per cent.

Growth of 2.5 per cent to three per cent over the next year is ”enough to bring the unemployment rate down, not rapidly, but bring it down at least 0.5 percent,” said Stuart Hoffman, chief economist at PNC Financial Services Group Incorporated in Pittsburgh. A faster decline in joblessness would require growth in the four per cent to five per cent range, he said.

Joblessness is currently ”high and, given the slow pace of economic growth, likely to remain so for some time,” Fed Chairman Ben S. Bernanke said in a speech in Frankfurt on November 19. Bernanke defended the additional $600bn in monetary stimulus the Fed announced earlier this month.

The Fed‘s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at an unrevised 0.8 per cent annual pace in the third quarter, down from a one per cent increase the prior quarter. The central bank‘s longer-term projection is a range of 1.7 per cent to two per cent.

 

Source: Punch