The US Household Spending Shows Vigorous Recovery

The US Household Spending Shows Vigorous RecoveryOnce again, the US economy did better than expected. The Gross Domestic Product (GDP) grew in the third quarter from 3.9% annualized, according to figures released on Tuesday, November 25, by the Department of Commerce. At a first estimation, growth was roughly assessed at 3.5%.

This comes as a surprise in the sense that economists expected a downward revision. The US economy has just experienced two consecutive quarters of growth, after the 4.6% recorded in April and June. It had not known such a high rate over six months since 2003. “The US recovery is on track” says James Marple, economist at TD Economics

If growth is stronger than expected, it is primarily because Americans consumed more. Household spending, which accounts for 70% of sales in the US rose 2.2%, 0.4 points higher than indicated in the first estimate published on 30 October. However, this figure is down compared to the second quarter, when consumption rose by 2.5%.

 

The price of gasoline, favorable factor

Consumers bought more clothes and goods for the home, stated Greg Foran, head of Wal-Mart in the United States, during the presentation of the results of the distributor in the third quarter. The decline in gasoline prices “may give an additional purchasing power in the coming months,” he says, while the price per gallon has fallen to its lowest level in four years.

One factor, which also supports the automotive market, already in great shape. Taken together, spending on durable goods rose 8.7%. However, the slower growth in wages and the price index for personal spending, which tops out at 1.3%, provide a damper on this idyllic picture.

Meanwhile, business investment grew at a solid pace of 7.1%. It was particularly boosted by spending on equipment and R&D, which increased by 10.7%. Companies face the future with even more optimism; they saw their pre-tax profits rise by 2.1% in the third quarter. Spending on residential construction is also estimated as being in good shape with a rise of 2.7%, also higher than the first estimate from the Commerce Department, which was 1.8%.

Optimism is still required

The trade figures were also substantially revised; the figures of the first estimate do not yet incorporate the statistics of September. Finally, exports rose less than expected (up 4.9% instead of 7.8%), while imports fell by only 0.7% (against 1.7% estimated in the first publication).

This slowdown in exports cannot be attributed to the rising dollar. As recalled Michelle Girard, chief economist at RBS, “the difference between currency appreciation and declining exports tend to be longer.” Deterioration of foreign trade is not to be excluded in the coming months if the dollar appreciation is extended and if global growth slows.

While analysts expect a fourth quarter down compared to the previous two, optimism is still required. “The winds that will blow on the trade will be offset by a more robust consumption, said Joseph Lake, an analyst at the Economist Intelligence Unit. The US economy should therefore maintain its momentum in the last months of the year trios, recording growth rates envied by most other OECD countries. But the drivers of this growth will change, household consumption replacing exports. ”

The same optimism is expressed by Beth Ann Bovino, chief economist at the US Standard & Poor’s. She believes that “the risk of recession in the euro zone may penalize exports, but US companies are very focused on their domestic market, which limits the risks. The private sector is particularly resilient, confidence has returned.”

This good news could change the speech of the Federal Reserve on a next rise in interest rates at the next meeting of the Monetary Policy Committee on 16 and 17 December.

 

Despite this good growth figure, an unexpected decline in the indicator measuring consumer sentiment in November experienced a swing on Wall Street. Shortly after opening, the Dow Jones dropped 0.09%.

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