The U.S. economy grew at a 3.1% annual rate in the third-quarter, more than previous government estimates of 2% and 2.7%. The July to September quarter was the nation's fastest rate of growth since the fourth-quarter of 2011. Inventory investment was the main driver of economic growth in Q3 according to the Commerce Department. Stronger trade, increased consumer demand for durable goods and health care services as well as a rebound in local, state and federal defense spending also contributed to higher growth. The economy expanded at a 1.3% rate in the second-quarter.
Mark Zandi, chief economist at Moody's Analytics, says in an interview with The Daily Ticker that the big increase in inventory accumulation would likely "steal growth away" from the current quarter. He predicts that economic growth will stay in the 2% to 2.5% range over the next year, roughly the same level as three years ago when the economy was starting to recover from the 2008 recession.
Growth in the first quarter of 2012 will be slow as businesses and consumers digest the tax implications and spending cuts of the so-called fiscal cliff, Zandi says (He expects the hit to GDP from the fiscal cliff will be 1% to 1.5%). The tough economic environment in the first half of 2013 will improve over the last six months of the year as the recovery in the housing market gains momentum.
Zandi agrees with the Fed's recent assessment that the unemployment rate will not fall to 6.5% until early 2015. Employers next year will add an average of a few million new jobs – about the same level as 2012 – but just enough to nudge the unemployment rate down to 7.5% by next December, Zandi notes.
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