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US 3Q GDP 0.7 per cent stronger than thought

Amid all the current worries concerning the US fiscal cliff there was good news for the world’s largest economy as a revised report compiled by the Commerce Department showed that expansion in the third quarter was actually stronger than previously thought.

Third quarter GDP growth was originally estimated at an annual rate of 2 per cent, but this figure has now been upwardly revised to 2.7 per cent.

Although this was 0.1 per cent lower than estimated by economists it is 1.4 per cent stronger than the growth seen in the second quarter. The improvement also shows that inventory gains made up for the small gain in consumer spending.

The decrease in trade deficit was also larger than thought as rather than widening to 413.7 billion Dollars in the three months to September it actually shrank to 403 billion Dollars.

That being said, this updated report showed that the gain in consumer purchases was the smallest seen for over a year, income gains were slashed and household purchases grew at a 1.4 per cent rate rather than the earlier estimated 2 per cent.

The revisions to the Commerce Department report also demonstrated why households are reducing their purchasing levels. Second quarter wage gains were negatively revised and cut by nearly half while salaries and wages in the third quarter (although initially thought to have increased by 43.3 billion Dollars) actually only grew by 30.4 billion Dollars.

A senior economist with New York based Societe Generale was pessimistic about US growth prospects. Brian Jones stated: ‘We’re just muddling through. The mix between final demand and inventories was far less favourable. The consumer spending numbers are a reflection of the fact that job growth remains sluggish.’

However, despite the negative aspects of this report some industry experts are remain positive that improving sentiment could underpin spending in the months ahead.

As of 14:45 pm

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