(MENAFN- Khaleej Times) The US economy expanded more than forecast in the third quarter, paced by a pickup in consumer spending, a rebound in government outlays and gains in residential construction.
Gross domestic product, the value of all goods and services produced, rose at a two per cent annual rate after climbing 1.3 per cent in the prior quarter, Commerce Department figures showed on Friday in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 1.8 per cent gain.
A housing rebound is helping mend Americans' finances and confidence, indicating the pickup in demand for expensive items such as automobiles can be sustained. The data is likely to play a role in the upcoming election, allowing President Barack Obama to say the economy is heading in the right direction, while challenger Mitt Romney may argue growth is not fast enough.
"The household side is doing better, that comes through pretty clearly," said Dean Maki, chief US economist in New York for Barclays, who correctly forecast the rate of growth. "Housing, which was in a deep hole, is also expanding. The fact that both of these are improving is an encouraging sign."
The rate of growth would have been stronger if not for the drought that affected crops in the Midwest. A drop in farm inventories subtracted 0.4 per centage point from third-quarter GDP after cutting 0.2 point in the prior period, the report showed.
Economists' estimates for GDP ranged from 0.9 per cent to 3.1 per cent. The GDP estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.
Consumer purchases, the biggest part of the economy, grew at a two per cent annual rate, up from a 1.5 per cent second-quarter gain and compared with a 2.1 per cent median forecast in the Bloomberg survey. Purchases added 1.4 per centage point to growth.
Retail sales in September and August had the best back-to- back showing since late 2010 as shoppers snapped up goods from cars to Apple's iPhones. Target, the second-biggest US discounter, was among chains topping analysts' estimates for same-store sales last month.
Cars and light trucks sold at a 14.9 million annual pace in September, the strongest since March 2008, according to Ward's Automotive Group. Chrysler Group and General Motors reported gains.
Record-low mortgage rates are stoking demand for housing, another area of the economy that's improving. Firming home prices and a drop in joblessness may further boost Americans' confidence and spending.
Residential construction increased at a 14.4 per cent rate, up from an 8.5 per cent gain in the prior period, Friday's report showed. The pickup in homebuilding added 0.3 percentage point to third-quarter GDP, in line with the average contribution during the first half of 2012. Americans bought new homes in September at the fastest pace in two years, Commerce Department figures showed two days ago. Demand was up 27.1 per cent from a year ago.
At the same time, consumers' purchasing power eased in the third quarter, with disposable income adjusted for inflation rising at a 0.8 per cent annual rate from July through September, the least since the end of 2011, after a 3.1 per cent gain in the second quarter, Friday's report showed. The saving rate fell to 3.7 per cent from four per cent.
Spending by the federal government also rebounded, led by a jump in defence outlays. It grew at a 9.6 per cent rate, the most since the second quarter of 2010. Total public expenditures climbed at a 3.7 per cent pace the most in three years.
One area of mounting concern is business investment and manufacturing. Corporate spending on equipment and software was unchanged, the weakest reading in three years, Friday's report showed.
Data on Thursday showed orders for non-defence capital goods excluding aircraft, a proxy for future corporate spending on items like computers, engines and communications gear, stagnated in September and shipments fell.
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