According to recent Commerce Department figures, US economic growth rose better than expected for the third quarter. Beating analysts’ estimates, the world’s largest economy expanded at a 3.1% annualized rate in the July-September period. But, although positive at face value, the survey showed some weakness that could ultimately affect expansion at yearend.
US Business Spending Slump
Supportive of higher economic growth in the US were consumer figures that were widely positive. According to US GDP report details, consumer sales built on the 1.4% rise in the second quarter, gaining by 1.6%. Subsequently, positive government spending added to bullish report results, contributing to the quarterly report, rather than taking away from it like it did in the second quarter.
However, business spending and investment witnessed a huge drop off as business leaders fretted over the possibility of a Fiscal Cliff showdown. The concerns translated into a 2.6% plunge in overall gross domestic product.
Now, although the drop off in business investment had a smaller effect on US expansion, it emphasizes that consumer sales continues to be the driver of US growth. If that ultimately thins out, the US economy could find itself in a contractionary situation.
Estimates Going Forward
The worries over the Fiscal Cliff are surely to affect GDP in the fourth quarter as well. Estimates are already pitted at a 1.4% annualized pace of expansion in the last three months of the year, with most expecting a continued slump in business spending. Slowdowns in manufacturing and employment are additionally likely to impede consumer spending a bit – a big negative for US growth.
As a result, with final GDP figure offers little hope for the US dollar in the short term as Fiscal Cliff concerns continue to weigh over current price action and future growth estimates. The sentiment is likely to keep the greenback depreciative against the Euro in the short term – as the EURUSD makes a push towards 1.3350.