Kristian Rouz – The post-crisis expansion in the US economy has reached self-sustainability levels at just under 4% annualized, as outlined in the third and final review of GDP growth by the US Department of Commerce.
The upward revision in based upon more robust consumer spending and construction data, with growing demand and labor efficiency in both sectors not least due to growth of prosperity in immigrant Hispanic and Asian communities.
As the US economy becomes more sustainable and thus less exposed to shocks resulting from policy changes, the US Fed gains more reason to liftoff its base interest rate from the current ultra-low levels.
The US Department of Commerce reported on Friday that US gross domestic product added an annualized 3.9% in the April-to-June quarter, an upward revise from last month’s estimate of 3.7%.
Stronger growth supports the case of a planned increase in US borrowing costs by the Federal Reserve this year, postponed only a week earlier as the Fed chair Janet Yellen had not been convinced of the US economy’s strength at that point.
Although the global economic situation is gloomy, with production efficiency falling sharply in many developing nations, the US economy is expected to slow insignificantly in Q3. While the growth in US services sector is slowing and consumer sentiment lowered in September, the US labor market figures are still upbeat and construction is rising.
In case the US economy demonstrates its newly acquired sustainability by the third quarter’s end, the Fed will have all the right signals to raise rates in December.
US consumer spending in August was revised up to 3.6% from the previous estimate of 3.1% as cheaper petrol and higher real estate prices contributed to households’ well-being. Non-residential fixed investment rose 4.1% in Q2, indicating a faster expansion in commercial property development and suggesting, in turn, a possibly burgeoning purchasing managers’ activity in the mid-term perspective.
Q2 corporate profits, surprisingly, turned out to be higher than previously estimated. As the US corporate earnings are a trouble area, with the dollar’s strength affecting the figures, profits after tax still rose 2.6% after they crashed in late 2014-early 2015. Previous estimates were 1.6% positive. Still, the rise in corporate revenues is attributed to the low base effect mostly.
Amidst the subsequent Fed policy expectations, the dollar hit its five-week highest, while the US Treasuries retreated, suggesting a higher yield. The preliminary Purchasing Managers’ Index (PMI) for September was lowered to 55.6 from the figure of 56.1 in August (anything above 50 means expansion).
For the US Federal Reserve, the most important signal is less part of economic expansion attributed to mere inventories’ accumulation. This suggests a stronger base for the third quarter’s growth, which, once robust enough, will be a trigger to the Fed rates liftoff.
With the US growth back on track, the pattern is likely to continue well into 2016, only slowing due to global headwinds. The accelerated economy is expected to unwind US inflation to the desired 2% as well, whilst also spurring demand and prices on raw materials, including oil.
