Businesses, trade to support U.S. third-quarter growth

October 30
6:19 AM 2014

A robust pace of business spending likely buoyed U.S. economic growth in the third quarter, a sign corporate chieftains have confidence in the sustainability of the recovery.

Gross domestic product likely grew at a 3.0 percent annual pace, according to a Reuters survey of economists, with housing, trade, government and consumers also lending support.

While that would be a step down from the second quarter's brisk 4.6 percent pace, it would the fourth quarter out of five that the economy has expanded at or above a 3 percent clip.

"It was a very good quarter for business investment," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.

Businesses, with a war chest of about $2 trillion, have been slow to ramp up spending. But change is in the air.

With unused factory capacity nearing pre-recession levels, the GDP report is expected to show a second straight quarter of double-digit growth in spending on equipment and a rise in investment in structures.

While data on Tuesday suggested some moderation in the pace of equipment investment in the fourth quarter, it is still expected to remain strong enough to keep the economy on a higher growth pace.

"There is no doubt that business investment activity has picked up over the last quarters, reflecting more confidence in the durability of the recovery," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

One of the few areas that is likely to drag on growth is inventories. A build up in inventories had added 1.42 percentage points to growth in the second quarter.

The Commerce Department will release its first snapshot of third-quarter GDP at 8:30 a.m. (1230 GMT) on Thursday.


The data comes one day after the Federal Reserve ended its asset purchasing program. Fed officials, who saw sufficient underlying strength in the broader economy, described business investment as "advancing."

While growth in consumer spending is expected to have decelerated from the second-quarter's 2.5 percent pace, it likely still contributed to GDP growth. Consumer spending accounts for more than two-thirds of U.S. economic activity.

The moderate pace of consumer spending likely helped keep inflation pressure under wraps during the quarter, with the two price indexes in the report expected to have decelerated sharply.

Declining gasoline prices and accelerating job growth, which is expected to lift wages, will provide tailwinds for consumer spending in the fourth quarter.

Housing will be another source of growth thanks to a rebound in home building and sales, which lifted brokers' commissions. Spending on home improvements will also help. Government spending is also expected to offer some support.

A smaller trade deficit should be another boost to growth. Although there are concerns a strengthening dollar and slowing euro zone and Chinese economies will crimp U.S. export growth, economists believe the impact will be marginal.

"We expect the positive momentum established in the third quarter to carry over into the fourth quarter," said Guy Berger, an economist at RBS in Stamford, Connecticut. "We believe the direct impact on U.S. GDP from a strong dollar and slower global growth is small."

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