WASHINGTON, 1 December 2005 — The US economy weathered the impact of hurricanes better than experts had expected, growing at a 4.3 percent annual pace in the third quarter, the government said yesterday in an upward revision to its prior estimate.
The Commerce Department figure for gross domestic product (GDP) was stronger than last month’s estimate of 3.8 percent growth and ahead of the 4.0 percent expected by Wall Street economists. The agency will make its final estimate next month.
The report suggests the economy overcame the impact of hurricanes Katrina and Rita, which shut down much of US oil operations in the Gulf of Mexico and devastated areas around New Orleans, Louisiana. By squeezing energy supplies, the storms also led to a surge in oil prices. “The fact that we added a 10th quarter of above-average growth amidst the hurricane devastation and the highest energy prices ever recorded is awesome,” said Ken Mayland, president of ClearView Economics.
“This revision was good news for the economy. Not only does it show a higher rate of growth, but it was from more sustainable sectors,” added Drew Matus, an economist at Lehman Brothers. “Less was from autos, and more was from investment and housing stock and capital and business equipment, things that will help with longer term growth.”
“The report showed that US economy was very buoyant in the third quarter despite hurricanes thanks to dynamic domestic demand,” said Marie-Pierre Ripert, an economist at IXIS Corporate and Investment Bank. Nonetheless, Ripert said she expected some slowing in consumer spending in the fourth quarter that will not be fully offset by increased manufacturing and services activity. “As a result, we are expecting GDP growth to decelerate in the fourth quarter” to a 2.8 percent growth pace, she said.
Other analysts agreed, saying debt-strapped US consumers are likely to retrench. “Third-quarter economic growth was once again supported by strong consumer spending,” said Joe Liro, an economist at Stone and McCarthy Research. “Unfortunately, the consumer is not in position to provide such support in the fourth quarter, thus we anticipate a sharp slowing of fourth-quarter economic growth.” The upward revision was largely due to higher spending on non-durable goods and to more investments in homes and in business equipment and software. As in the earlier estimate, growth was powered by consumer spending and business investments.
Consumer expenditures accounted for 2.97 percentage points of the growth, and showed an increase of 4.2 percent in the quarter. Business investment accounted for 0.91 percentage points of growth in the quarter, and real estate was responsible for 0.50 percentage points. These were partly offset by growth in imports, which are a subtraction in the calculation of GDP. A key measure of inflation was revised lower. The core personal consumption expenditure price index rose at a 1.2 percent annual rate compared with an earlier estimate of 1.3 percent.
The report noted however that US corporate profits from current production, meanwhile, fell 3.4 percent, or $45.5 billion annualized, in the third quarter on losses due to hurricanes Katrina and Rita.
