Economic Indicators, Stock Market & Investment Reports

10.31.2012

America’s economy accelerated third quarter

GDP 3Q2012America’s economy rose at a 2% annual pace in the third quarter, reported the Bureau of Economic Analysis this on October 26. It marks an acceleration from a second quarter in which growth clocked in at just 1.3%.

The acceleration itself is encouraging. So too are some of the sources of that acceleration. Consumers continue to pull their weight, and an 8.5% rate of growth of durable goods consumption in the third quarter suggests that the appetite for big purchases is holding up. Residential investment boomed, rising at a 14.4% annual pace for the quarter. Despite that the sector managed just a 0.33 percentage-point contribution to total growth. The relatively low contribution reflects just how far residential output tumbled during the recession and recovery. Construction should chip in ever more in coming quarters, however, as inventory levels have been plummeting and rents and prices rising.

Government spending and investment also helped output along in the third quarter. The biggest contribution came from a rise in federal defense outlays.

There is also some cause for concern in the report, however, which seems to reflect the slowdown in industrial activity related to global economic weakness. The contribution of investment to growth sank for a second consecutive quarter, and net trade was a drag on output as exports fell by more than imports. Where industrial recovery and trade helped compensate for domestic economic weakness early in the recovery, they now seem to be preventing domestic resilience from adding more to output.

There is good reason to expect continued acceleration into the fourth quarter. A recovering housing sector should continue to raise household confidence. But beyond that, the outlook grows more cloudy. A raft of spending cuts and tax rises—the fiscal cliff—looms at year's end. If Congress is unable to prevent some of the expiring measures from hitting, the fiscal blow could harm two of the sectors most responsible for this quarter's decent performance: personal consumption and government spending and investment.