Inventories, trade shield U.S. economy from hurricane
headwinds
Send a link to a friend
[October 28, 2017]
By Lucia Mutikani
WASHINGTON (Reuters) - The U.S. economy
unexpectedly maintained a brisk pace of growth in the third quarter as
an increase in inventory investment and a smaller trade deficit offset a
hurricane-related slowdown in consumer spending and a decline in
construction.
Gross domestic product increased at a 3.0 percent annual rate in the
July-September period, also supported by strong business spending on
equipment, the Commerce Department said on Friday. With inventories,
goods yet to be sold, contributing almost three-quarters of a percentage
point to growth last quarter, the increase in GDP overstates the
economy's health.
Excluding inventory investment, the economy grew at a 2.3 percent rate,
slowing from the second quarter's 2.9 percent pace. A measure of
domestic demand also decelerated to a 2.2 percent growth rate from the
April-June period's 3.3 percent pace.
"This is a positive report for an economy that was battered by two
hurricanes late in the quarter but it is not as strong as the headline
3.0 percent growth might suggest," said John Ryding, chief economist at
RDQ Economics in New York.
![](http://archives.lincolndailynews.com/2017/Oct/28/images/ads/current/american_legion_sda_2014.png)
The economy grew at a 3.1 percent pace in the second quarter. It was the
first time since 2014 that it experienced growth of 3 percent or more
for two quarters in a row. Economists had forecast GDP increasing at a
2.5 percent rate in the third quarter.
The government said while it was impossible to estimate the overall
impact of hurricanes Harvey and Irma on third-quarter GDP, preliminary
estimates showed that the back-to-back storms had caused losses of
$121.0 billion in privately owned fixed assets and $10.4 billion in
government-owned fixed assets.
Harvey and Irma struck parts of Texas and Florida in late August and
early September. Hurricane Maria, which destroyed infrastructure in
Puerto Rico and the Virgin Islands, had no impact on third-quarter GDP
growth as the islands are not included in the United States' national
accounts.
Post-hurricane labor market, retail sales and industrial production data
already show an acceleration in underlying economic activity. Economists
expect the Federal Reserve will increase interest rates for a third time
this year in December.
![](http://archives.lincolndailynews.com/2017/Oct/28/images/ads/current/cca_laptop-sda021709.png)
"Fed officials will be encouraged by both the overall performance and
the composition of growth in the third quarter, which confirms the U.S.
economic expansion remains on solid ground," said Michelle Girard, chief
U.S. economist at NatWest Markets in Stamford, Connecticut.
The dollar rose to a three-month high against a basket of currencies on
the data. Prices for U.S. Treasuries fell, with the yield on the
interest rate sensitive two-year note touching a fresh nine-year high.
U.S. stocks were trading mostly higher.
The economic recovery since the 2007-2009 recession is now in its eighth
year and showing little signs of fatigue. The economy is being powered
by a tightening labor market, which has largely maintained a strong
performance that started during former President Barack Obama's first
term.
![](http://archives.lincolndailynews.com/2017/Oct/28/images/ads/current/brickey_lda_061314.png)
[to top of second column] |
![](../images/102817pics/busine87.jpg)
A construction worker works on the side of a hill along a highway
construction project in Encinitas, California, U.S., October 26,
2017. REUTERS/Mike Blake
![](http://archives.lincolndailynews.com/2017/Oct/28/images/ads/current/dd_lda_FFARM_2017.png)
Though U.S. stocks have risen in anticipation of President Donald Trump's tax
reform, the administration has yet to enact any significant new economic
policies. Trump wants big tax cuts and fewer regulations to boost annual GDP
growth to 3 percent.
INVENTORY BOOST
Businesses accumulated inventories at a $35.8 billion pace in the third quarter,
leading to inventory investment adding 0.73 percentage point to third-quarter
GDP growth. Inventories contributed just over a tenth of a percentage point to
output in the prior period. Economists expect a modest boost from inventories in
the fourth quarter.
Though export growth slowed in the last quarter, that was eclipsed by the
steepest pace of decline in imports in three years, leaving a smaller trade
deficit, which added four-tenths of a percentage point to GDP growth. Trade has
contributed to output for three quarters in a row.
Business investment in equipment rose at an 8.6 percent rate, increasing for a
fourth straight quarter. Growth in consumer spending, which accounts for more
than two-thirds of the U.S. economy, slowed to a 2.4 percent rate as hurricanes
Harvey and Irma hurt incomes.
![](http://archives.lincolndailynews.com/2017/Oct/28/images/ads/current/burtonview_coop_sda_daily_FFARM_2016.png)
Consumer spending rose at a robust 3.3 percent pace in the second quarter and is
likely to accelerate in the fourth quarter with a separate report on Friday
showing consumer sentiment holding at lofty levels in October.
Despite the moderation in consumer spending, inflation perked up in the third
quarter, likely as a result of disruptions to the supply chain caused by the
hurricanes.
The Fed's preferred inflation gauge, the personal consumption expenditures (PCE)
price index excluding food and energy, increased at a 1.3 percent rate. That
followed a 0.9 percent pace of increase in the second quarter.
With inflation rising, income at the disposal of households increased at a 0.6
percent rate, braking sharply from the second-quarter's strong 3.3 percent pace.
Investment in nonresidential structures fell at a 5.2 percent pace in the third
quarter, the biggest drop in nearly two years, as spending on mining
exploration, wells and shafts grew at only a 21.7 percent rate, a sharp
deceleration from the second-quarter's 116.3 percent pace.
![](http://archives.lincolndailynews.com/2017/Oct/28/images/ads/current/maskeauction_sda_022614.png)
Investment in homebuilding, which was already undermined by land and labor
shortages, contracted for a second consecutive quarter. Government investment
recorded its third straight quarterly decline
"While hurricane effects are hard to parse out of the GDP data, we anticipate
rebuilding efforts will lift residential investment out of the doldrums it has
occupied the last two quarters," said Michael Feroli, an economist at JPMorgan
in New York.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
[© 2017 Thomson Reuters. All rights
reserved.] Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |