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Stockpiles help US growth beat forecast in Q3

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November 26
2:00 AM 2015

The world's largest economy registered an encouraging growth in gross domestic product (GDP) in the third quarter of 2015.

The GDP growth rate surpassed previous forecasts as businesses expanded inventories indicating the economy on the right track. The US economy is closing out 2015 year on a modest, but significant growth boosting the business confidence.

The GDP growth rate rose 2.1 percent during the third quarter as against the previous forecast of 1.l5 percent growth rate. The surging of private inventories was the prime driver of the growth during the third quarter. The piling up of inventories helped in increasing the GDP. 

However, the growth pace during July-September was slower than the previous second quarter.

The US economy grew 3.9 percent in the second quarter. Moreover, the stockpiles could be a major setback on GDP in the fourth quarter as soon as the inventories are drawn down, according to the Wall Street Journal.

The fourth quarter's growth rate is forecast at 2.5 percent or better. 

Wall Street economists predicted upward revision of growth forecast. The final numbers are scheduled for launch on 22 December. The US economic growth for 2015 year is expected to be 2.5 percent slightly lower from 2.4 percent in 2014. 

Goldman Sachs calls the US economic growth as 'tortoise recovery.' Jan Hatzius, Chief Economist at Goldman Sachs, told the New York Times that "it does not mean the economy has been uniformly lackluster."

The present growth rate is good enough to achieve cumulative progress in the labor market, he said, while assessing that "we now expect that the US economy will reach full employment within the next 12 months as the tortoise recovery looks to be approaching the finishing line."

The US economy was mostly hovering at two percent growth rate during the past few years. The GDP grew 2.2 percent in the third quarter, registering the slowest growth since the first quarter of 2014. 

The encouraging latest numbers will widen the scope for interest rate hike by US Federal Reserve. The next meeting of Fed is scheduled in December. The drop in gasoline prices and healthy labor market are expected to boost consumer spending.

Economists expect the GDP growth rate in the fourth quarter at 2.5 percent or better. 

Stephen Stanley, Chief Economist at Amherst Pierpont Securities said the key takeaway is that the "inventory adjustment that has always been inevitable for the second half of the year is likely to drag out to two or more, quarters rather than being concentrated primarily in the third quarter. The movement in inventories basically just shuffles growth between Q3 and Q4."

A majority of US companies' financial performance turned weaker during the third quarter. Corporate profit after tax excluding inventory valuation and capital consumption dropped 3.2 percent from the second quarter.

This is the steepest since the fourth quarter of 2014. Corporate profit growth was 1.4 percent from 8.5 percent in the second quarter on a year-on-year basis. 

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