US 3Q GDP, Jobless Claims Data Reinforce Calls for Easing

The Commerce Department released its first revision of third quarter gross domestic product showing that the U.S. economy grew at an annual rate of 2.7%. That compares to the initial estimate of 2.0% growth. On the plus side, inventories and exports were higher than initial estimates. Looking at the negatives, consumer spending, corporate capital investment and government investment were revised down from their initial estimates. The growth rate of residential construction was revised down slightly while non-residential construction contracted for the first time since the second quarter of 2011. “While the growth pace was much quicker than the 2.0 percent rate the government estimated last month and the best since the fourth quarter of 2011, it was hardly a sign of strength in the economy given the boost from restocking and weaker consumer spending,”

commented. Exports were the biggest contributor to the upward revision in today's GDP estimate. In its initial estimate, the Commerce Department said that exports fell by 1.6% during the July-September quarter. Today, exports were revised up to show 1.1% growth. Economists say that the biggest concern is the downward revision in consumer spending, from 2.0% growth to 1.4% growth. “We're just muddling through,” Brian Jones, a senior U.S. economist at Societe Generale in New York told

. “The mix between final demand and inventories was far less favorable. The consumer spending numbers are a reflection of the fact that job growth remains sluggish.” Economists also said that the downward revision in capital investment I the direct result of uncertainty over the outcome of negotiations on the “fiscal cliff.” Capital spending fell for the first time since the first quarter of 2011 and the pace of the decline accelerated from 1.3% to 2.2%. Housing construction remained a bright spot, spurred on by record low mortgage rates and the prospect of further easing by the Fed. Even so, the pace of growth was revised down from 14.4% to 14.2%. Non-residential construction fell for the first time in six quarters. Growth in government investment was revised down from 3.7% to 3.5% due to slower spending by state and local governments and defense cutbacks. “The report helps explain why Federal Reserve policy makers have said they'll continue to pump money into the economy to spur growth and reduce joblessness,” Bloomberg wrote. “At the same time, an improvement in housing, employment gains and healthier household finances may help underpin consumer purchases, the biggest part of the economy.” However, other economists warn that the inventory build-up in the third quarter may mean less production in the fourth quarter, which is already being reduced by fears of severe austerity in early 2013 if the argument over the fiscal cliff remains unresolved. The Labor Department released initial jobless claims for the week ended November 24 showing a decline of 23,000 to 393,000. “The drop in claims indicates the job market in the mid- Atlantic region, which employs about 14 percent of U.S. workers, may be stabilizing after Sandy put some area residents out of work at the start of the month,”

wrote. Still, initial jobless claims data has been distorted because many people who were put out of work by Sandy could not immediately file claims because of disruptions caused by the storm “Looking past the storm, companies may be reluctant to hire as the recession in Europe curbs export orders and the so-called fiscal cliff of $607 billion in spending cuts and tax increases set for 2013 raises the risk the world's largest economy will slow,” Bloomberg commented. “Payroll gains so far this year have averaged 157,000 a month, showing little acceleration from the 153,000 average in 2011.” Also, the decision to wind up the operations of Hostess Brands last week will result in the loss of 18,000 jobs over the short-term.