US economy sees 3% growth, shrugging off hurricanes

The US economy continued to expand at a robust three percent clip in the third quarter despite back-to-back hurricanes, hitting President Donald Trump's growth target for the second time since he took office, official data showed Friday,

GDP growth in the world's largest economy had its best six-month stretch since mid-2014, handily absorbing the shocks of Hurricanes Harvey, Irma and Maria, the US Commerce Department reported.

The outcome was welcome news for the White House, where Trump has claimed credit for the economy's performance since his inauguration in January, even though large parts of his economic agenda remain a work in progress.

The result could also hand an argument to Republican leaders who are pushing for sweeping tax cuts, which they say an expanding economy will finance, though economists doubt this.

"The US economy is surging under this president's leadership," White House Press Secretary Sarah Sanders told reporters on Friday.

"America can continue this momentum if Congress adopts our framework for major tax cuts."

The brisk growth -- which follows a 3.1 percent expansion on an annual basis in the second quarter -- could also strengthen the hand of monetary policymakers at the Federal Reserve who favor raising interest rates despite flagging inflation.

Though only a preliminary estimate, the result easily overshot analyst forecasts that called for a result of 2.4 percent in light of the storms, which shuttered oil production and refining and idled businesses in Texas, provoked a mass exodus in Florida and laid waste to the island territory of Puerto Rico.

"Overall, this is a very solid performance, given the disruption caused by Hurricanes Harvey and Irma," Ian Shepherdson, founder of the consultancy Pantheon Macroeconomics, said in a research note.

Shepherdson said the "storms boosted auto sales and spending on food and other storm-related items but depressed housing activity and spending on discretionary services like leisure and entertainment."

President Trump took office vowing to return the United States to sustained three percent annual GDP growth or better, but economists say this is unrealistic.

- Spurring the Fed to action? -

According to the Commerce Department, third quarter growth in GDP, the broadest measure of output in goods and services, reflected strong consumer spending and business investment -- which were partly offset by sagging home building and falling state and local government spending.

Spending on construction for new private homes fell six percent in a tight market, where demand has persistently outstripped supply.

The positive result was also buoyed by a narrowing trade gap, with exports rising 2.3 percent while imports fell 0.8 percent on a weak US dollar.

Officials stressed that the "advance" estimate was subject to revision as more of the underlying data become available.

Analysts cautioned, however, that part of the third-quarter result was lifted by often-volatile inventories, which can sometimes point to a coming slow-down, though this appeared unlikely.

Josh Bivens, research director at the left-leaning Economic Policy Institute, noted that domestic final sales, a separate measure which tracks domestic demand but strips out the inventories segment, had seen only 1.8 percent growth, down from 2.7 percent in the second quarter.

"This number seems like the more informative one about the underlying strength of the US economy's expansion: slow but almost exactly in line with the entire post Great Recession period," he said in a research note.

The Federal Reserve is widely expected to leave benchmark US interest rates untouched when policymakers gather next week for a periodic meeting in Washington.

However, markets broadly expect that at a final meeting of the year in December the central bank will adopt the third rate hike of 2017, even though policymakers concede they are mystified by the recent weakness of inflation.

Shepherdson of Pantheon Macroeconomics said the rising growth pointed to continuing job creation and falling unemployment.

"Nothing drives Fed policy like the unemployment rate, which is why market expectations of just one further hike after December are unrealistic," he wrote.

Source: AFP