GDP growth 2% for 3Q
The U.S. economy expanded faster last quarter than the prior period but still remain too slow to impact the stubbornly high unemployment rate. Real gross domestic product, which is the output of goods and services by labor and property, increased at an annual rate of 2% in the third quarter, according to the advance estimate from the Commerce Department's Bureau of Economic Analysis. Last quarter's growth come on the heels of a 1.7% gain in the second quarter and a 3.7% increase in the first quarter. Paul Ashworth, senior U.S. economist at Capital Economics, said GDP growth remains well below the trend rate of 2.5% to 3%, "underlining why many Fed officials think another bout of QE is necessary." The Commerce Department said higher personal spending, private investment, and federal government spending boosted GDP growth, as did a 5% increase in exports. Although a sharp decline in imports of 17.4% and higher private-inventory investment weighed down growth. Consumer spending, which accounts for about 70% of economic activity, rose 2.6% in the third quarter to he fastest pace in four years. "Consumption growth was solid enough, increasing by 2.6%, up from 2.2% in the second quarter," Ashworth said. "But households had to dip into their savings to afford even that modest increase. Furthermore, the pace of growth in business investment has slowed sharply, as firms finish working through pent up demand for replacement capital equipment." The economist also doubts another round of Treasurys purchases from the Federal Reserve will spur increased economic growth. The Federal Open Market Committee convenes for its next meeting Tuesday. "The problem is that we don't see things changing much for some time when the necessary balance sheet repair still has a long way to go," according to Ashworth. "The fiscal stimulus is waning, the boost from inventories is fading, pent up investment demand is slowing. Against those headwinds, $500 billion of Treasury purchases is not going to make any meaningful difference whatsoever." Write to Jason Philyaw.