USAupdated 1h ago2 min read
Archive photo · 30 July 2012U.S. Economy Grows 3.4% Annualized In Third Quarter, Fed Leaves Rates Unchanged
“Driven by strong consumer spending and a surge in artificial intelligence investments”
“Investment in information processing equipment also rose, as did private inventories.”
Photo: Dietmar Rabich, CC BY-SA 4.0 · Cropped for layout
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U.S. GDP rose 3.4% annualized in Q3, beating economists' expectations. Growth driven by robust consumer spending and AI-related investment.
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3.4% GDP, Fed weighs
The United States economy expanded at an annualized rate of 3.4% over the three months ending in September, according to a government report released on Thursday. The Bureau of Economic Analysis data showed third-quarter growth accelerated from 2.2% annualized GDP growth in the previous quarter, and it outpaced a 2.5% annualized rate recorded over the first three months of this year. The Federal Reserve left its benchmark interest rate in the 3.75%-4.00% range while acknowledging that inflation "remains elevated," and the odds of a quarter-point rate hike at the Fed's next meeting in December were pegged at about 85% by CME Group's FedWatch Tool.
Fed Chair Kevin Warsh told reporters "Economic activity is expanding at a strong pace," while he said domestic spending has been resilient even as uncertainty remains. Prices increased 3.7% in September compared to a year earlier, putting the inflation rate more than a percentage point above the Fed's target level of 2%, government data showed.
Inflation, spending, AI
Consumer spending, which accounts for more than two-thirds of economic output, grew at a 3.8% rate, while households saved just 4.1 percent of their after-tax income in the third quarter. Businesses poured money into artificial intelligence, and the economy grew 3.4 percent in the third quarter, the fastest pace in a year. Commercial investment, excluding housing, rose 12.7% as growth was lifted by AI spending, and capital outlays on information processing equipment jumped 37.4%.
Residential investment fell 3.3%, marking its sixth decline in the last seven quarters, as high mortgage rates constrained housing. The Bureau of Economic Analysis said the third-quarter GDP increase came as consumer spending and business investment supported growth, with consumer spending rising at a 3.8% rate.
Midterms and next moves
Policymakers may lose patience as they weigh whether the current level of interest rates is high enough to ease price hikes, with another potential rate increase pressing the brakes harder on the economy. The strong spending and growth figures contrast with the poor marks many voters are giving the economy as Americans head to the ballot box for next week’s midterm elections. Diane Swonk, chief economist for KPMG, told the New York Times, "The data on the economy are something to celebrate, but they look better on paper than they feel to most Americans."
The reports came a day after the Federal Reserve left its key interest rate unchanged, and the central bank will remain under pressure to raise rates at its next meeting in December. The ABC News report added that the odds of a quarter-point rate hike at the Fed's next meeting in December were pegged at about 85%, and it said the Fed raised interest rates a quarter of a percentage point last month as it tried to battle back price woes.
