Newspaper article International Herald Tribune

Economic Growth Rate Revised Higher in U.S. ; G.D.P. Expanded Faster Than First Estimated but 'Fiscal Cliff' Warnings Lurk

Newspaper article International Herald Tribune

Economic Growth Rate Revised Higher in U.S. ; G.D.P. Expanded Faster Than First Estimated but 'Fiscal Cliff' Warnings Lurk

Article excerpt

The Commerce Department revised its estimate for U.S. growth to 2.7 percent in the three months ending Sept. 30, up from an intitial reading of 2 percent. Still, economists warned that the rate could slow sharply before January.

Even as the United States said that the economy grew faster in the third quarter than first estimated, economists warned that the rate of expansion could slow sharply before the end of the year as worries grow about a fiscal impasse in Washington.

The Commerce Department said Thursday that U.S. gross domestic product expanded at an annual rate of 2.7 percent in the three months ended Sept. 30, well above the 2 percent estimate it initially made in late October. But the revision was driven by increased inventory and a jump in federal spending -- factors unlikely to be repeated in the current fourth quarter, economists said.

What is more, the revised figures show spending by businesses on equipment and software declined by 2.7 percent in the third quarter. It was the first decrease since the end of the recession in mid- 2009 and a sign of just how cautious many companies have become amid the uncertainty in Washington over whether politicians can hammer out an agreement to avoid mandatory tax increases and spending cuts known as the fiscal cliff. Slowing growth in Asia and Europe are also weighing on confidence.

"It's a nice headline number," Nigel Gault, chief U.S. economist at IHS Global Insight, said of the 2.7 percent rate, "but it exaggerates the underlying momentum in the economy. Sustainable improvements in growth are not driven by inventories."

The two biggest growth areas in the third quarter -- inventory growth and federal spending -- "are likely to be minuses in the fourth quarter," he said. Mr. Gault said he expected the annual rate to sink to 1 percent this quarter, hurt by the fiscal stalemate by lawmakers in Washington as well as the aftereffects of Hurricane Sandy. …

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