The US economy unexpectedly maintained a brisk pace of growth in the third quarter as an increase in inventory investment and a smaller trade deficit offset a hurricane-related slowdown in consumer spending and a decline in construction.
Gross domestic product increased at a 3.0% annual rate in the July-September period, also supported by strong business spending on equipment, the Commerce Department said yesterday.
The economy grew at a 3.1% pace in the second quarter.
The government said while it was impossible to estimate the overall impact of hurricanes Harvey and Irma on third-quarter GDP, preliminary estimates showed that the back-to-back storms had caused losses of $121.0bn in privately owned fixed assets and $10.4bn in government-owned fixed assets.
Harvey and Irma struck parts of Texas and Florida in late August and early September.
Hurricane Maria, which destroyed infrastructure in Puerto Rico and the Virgin Islands, had no impact on third-quarter GDP growth as the islands are not included in the United States’ national accounts.
Economists had forecast the economy growing at a 2.5% pace in the third quarter.
“This is a positive report for an economy that was battered by two hurricanes late in the quarter but it is not as strong as the headline 3.0% growth might suggest,” said John Ryding, chief economist at RDQ Economics in New York.
Excluding inventory investment, the economy grew at a 2.3% rate, slowing from the second quarter’s 2.9% pace.
A measure of domestic demand also decelerated to a 2.2% rate from the April-June period’s 3.3% pace.
With post-hurricane labour market, retail sales and industrial production data already showing an acceleration in underlying economic activity, the mixed GDP report will probably have no impact on monetary policy in the near term.
The US central bank is expected to increase interest rates for a third time this year in December.
The dollar rose to a three-month high against a basket of currencies on the data.
Prices for US Treasuries fell, with the yield on the interest rate sensitive two-year note touching a fresh nine-year high.
The economic recovery since the 2007-2009 recession is now in its eighth year and showing little signs of fatigue.
The economy is being powered by a tightening labour market, which has largely maintained a strong performance that started during former President Barack Obama’s first term.
Though US stocks have risen in anticipation of President Donald Trump’s tax reform, the administration has yet to enact any significant new economic policies.
Trump wants big tax cuts and fewer regulations to boost annual GDP growth to 3%.
Businesses accumulated inventories at a $35.8bn pace in the third quarter in anticipation of strong demand.
As a result, inventory investment contributed 0.73 percentage point to third-quarter GDP growth, after adding just over a tenth of a percentage point to output in the prior period.
While export growth slowed, that was eclipsed by the steepest pace of decline in imports in three years, leaving a smaller trade deficit, which added four-tenths of a percentage point to GDP growth.
Trade has contributed to output for three quarters in a row.
Hurricanes Harvey and Irma, which hurt incomes and undercut retail sales in August, crimped consumer spending in the third quarter.
Growth in consumer spending, which accounts for more than two-thirds of the US economy, slowed to a 2.4% rate following a robust 3.3% pace in the second quarter.
Despite the moderation in consumer spending, inflation perked up in the third quarter, likely as a result of disruptions to the supply chain caused by the storms.
The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 1.3% rate.
That followed a 0.9% pace of increase in the second quarter.
With inflation rising, income at the disposal of households increased at a 0.6% rate, braking sharply from the second-quarter’s strong 3.3% pace.
Investment in nonresidential structures fell at a 5.2% pace in the third quarter, the biggest drop in nearly two years, as spending on mining exploration, wells and shafts grew at only a 21.7% rate, a sharp decelerating from the second-quarter’s 116.3% pace.
Spending on nonresidential structures rose at a 7.0% rate in the second quarter.
Investment in home-building, which was already undermined by land and labour shortages, also took a hit from Harvey and Irma.
Spending on residential construction declined at a 6.0% rate, contracting for a second straight quarter.
Business investment on equipment rose at an 8.6% rate, increasing for a fourth straight quarter.
Government investment fell for a third straight quarter.