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Thursday, November 29, 2012

US economic growth rate revised up to 2.7%

The US economy grew at an annualised rate of 2.7% in the third quarter of the year, revised data has suggested.

The figure is significantly higher than the 2% initial estimate that the Commerce Department released just before the presidential election.

Much of the growth was due to companies rebuilding their inventories, and is not expected to be sustained.

The first estimate itself had beaten analysts' expectations, and fuelled the suspicions of some Republicans.

The growth rate for the second quarter was confirmed at 1.3%.
Housing rebound

The revised data confirmed that a 9.5% jump in spending by the federal government during the quarter - compared with a 0.2% decline the previous quarter - played an important role in the pick-up in growth.

What the first estimate had failed to pick up was the scale of restocking by private-sector businesses.

This inventory build-up effect - which typically provides a temporary boost to economic activity early on in the recovery from a recession - added 0.77 percentage points to the pick-up in the overall growth rate in the third quarter, the Commerce Department said.

Other factors that boosted growth included the continued rise in consumer spending, stronger exports, and a slight rebound in homebuilding activity from historically low levels.

There were also some negative factors in the data, including further cuts in state and local government spending, and a fall in construction of commercial property.

Developments in the US housing market are being watched closely by economists, as they are likely to determine the durability of the recovery.

Normally, periods of recovery in the US economy are led by residential construction, as building firms quickly get back to work on a backlog of projects as soon as the recession is over.

But this time round, the recession was in large part caused by the bursting of a housing market bubble, that left behind a glut of unsold homes, bankrupted many homebuilding firms, and saw the sharpest and most sustained collapse in homebuilding activity in recorded US history.
Data controversy

Some Republicans had expressed incredulity at a string of unexpectedly strong economic figures released in October, in the run-up to the presidential elections.

The initial growth estimate followed jobs figures that showed the unemployment rate falling in September from 8.1% to 7.8% - its lowest rate since January 2009, and well below market expectations.

The positive jobs data came shortly after Mr Obama put in a poor performance during the first of the three presidential debates, and prompted some Republican supporters to call foul.

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