Consumers Boost Growth, GDP Growth up 2 Percent

Two weeks before the upcoming presidential election consumer and government spending help boost economy by more than analysts have predicted.

Statistics show that the American economy grew by 2 per cent on the back of consumer and government spending between May and June. Photo: Administrador Galeria Uninter/Flickr

The third quarter of the year marked a steady growth of the US economy as a late burst in consumer spending offset the first cutbacks in investment in more than a year by cautious businesses, reports Reuters.

The figures, released by the US commerce department, show a noticable improvement on the 1.3 per cent growth experienced in the second quarter which is higher than the 1.8 per cent that has been widely expected.

“The economy still has only weak forward momentum. Some underlying fundamentals are improving, but uncertainty at home and abroad is holding back the business sector,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington Massachusetts.

The news backed President Barack Obama’s comments that the US economy is accelerating its recovery, but were still not high enough to bring down the unemployment rate, The Financial Times reports.

Consumer spending increased from 0.5 per cent to 2 per cent, hile government spending soared by 9.3 per cent. However, exports fell 1.6 per cent.

White House adviser Alan Krueger suggested that the released figures point out that there’s need to extend tax cuts for the middle class and small businesses, as Barack Obama has already proposed. As for Obama’s Republican rival Mitt Romney, he said it evidence of the president’s failed policies.

“In the third quarter of this year, consumers shrugged off the impending sharp cuts in government spending and higher taxes that are due next year and went on a bit of a shopping spree, with spending strong for automobiles and Apple Inc’s iPhone 5,” Reuters writes.

“Consumer spending, which accounts for about 70 percent of U.S. economic activity, grew at a 2 percent rate after increasing 1.5 percent in the prior period.”

Some reports suggest that consumer sentiment is in its highest point of the past five years, another sign households are puzzled due to the so-called fiscal cliff that is set to drain about $600 billion from the economy in 2013 unless Congress acts.

Due to high enough stock prices and firming home values households a have become more willing to take on new debt, supporting consumer spending even in the face of predicted rise of gasoline prices.

The figures also demonstrate that the inflation rate in the GDP rose at a 1.8 percent, obviously speeding up from the second quarter’s 0.7 percent pace.

However, a core measure that strips out food and energy costs fell to a 1.3 percent rate, which makes experts believe that the rise in overall inflation won’t be long.

Even so, with about 23 million American people who are not occupied, consumers might have to cut back, especially if they get a higher tax bill in 2013.

The last quarter also has seen squeeze in income – rising just 0.8 percent after accounting for inflation and taxes – and households cut back on saving to ramp up spending.

Reports suggest that government spending accounted for 0.7 percentage point of GDP growth. Defense outlays jumped at a 13 percent annual rate, the most since the second quarter of 2009, after dropping for three straight quarters.

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