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US economy grew more quickly than expected in Q3

By Amanda Cooper

Pace of US economic growth picks up faster than initially thought in the third quarter

The US economy expanded more quickly than expected in the third quarter of this year, thanks to an increase in inventory building and a slower rate of decline in business investment, meaning the Federal Reserve may be less likely to cut benchmark interest rates any time soon after three successive cuts this year.

Gross domestic product in the three months from July to September expanded at an annual rate of 2.1 per cent, compared with estimates for a rise of 1.9 per cent and up from an initial quarterly reading of 2 per cent last month, according to revised data from the US Bureau of Economic Analysis (BEA).

“The increase in real GDP in the third quarter reflected positive contributions from PCE, federal government spending, residential investment, private inventory investment, exports, and state and local government spending that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased,” the BEA said in a release.

The dollar index edged back up towards session highs around 98.36, a 0.1 per cent rise on the day, after the data was released.

The world’s largest economy had been progressively slowing over the course of this year, in large part due to fizzling business investment, which had threatened to contract at its fastest pace since late 2015 in the third quarter of this year.

The trade war between the United States and China, as well as a looming presidential election next year, have brought a degree of caution to US consumers, whose spending accounts for roughly three-quarters of overall GDP.

GDP grew by 2.0 per cent in the second quarter, down from a rate of 3.1 per cent in the first three months of 2019.

Consumer confidence fell for a fourth month in a row in November, signalling that US households are reining in spending, as the global economy slows, based on data from the Conference Board private research group.

Financial markets are indicating that investors strongly believe there will be no change in the benchmark federal funds target rate at the Fed’s next meeting in December, but a one-in-five chance of another cut by the end of the first quarter of 2020, based on the Chicago Mercantile Exchange’s FedWatch online tool.

FURTHER READING: October US job growth slows at lesser rate than expected

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