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    Q3 US GDP Revised Up to 3.5pc, But Jobless Claims Rise

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    Despite the upbeat dynamics in US growth in the past quarter, the negative signals from the labor market, and contraction in manufacturing and corporate spending suggest another economic slowdown in the current quarter, with downward pressures mounting in the next year.

    Kristian Rouz – According to today’s report by Commerce Department, the US economy expanded 3.5pc year-on-year in the third quarter compared to earlier estimates of 2.9pc and 3.2pc, as services, intellectual property and state and local governmental spending on construction contributed to growth initially lifted by the increase in soybean exports.

    However, the labor market showed signs of erosion in the fourth quarter, with unemployment claims rising to their six-month highest in mid-December, while the buoyant growth failed to propel prices index higher amid the lingering negative effects of the dollar’s strength.

    The Commerce Department said on Thursday the US economy added an annualised 3.5pc in Q3 compared to earlier projections of a revision up to 3.3pc from the earlier estimates. Albeit the upbeat figures lifted investor confidence of the US economy, the resumed dollar rally and influx of foreign investment might further impair the competitiveness of domestic manufacturing, already in bad shape due automation and illegal immigration.

    Furthermore, increased pressure on the labor market in the form of stagnant wages and insufficiency of available jobs, could undermine consumer sentiment. Early projections into the Q4 GDP are thus cautious to say the least.

    “We have seen similar bursts of optimism in this expansion’s past that were partially reversed before too long,” Scott Anderson of Bank of the West said. “Many of our country’s long-term economic problems from slowing productivity growth, an aging population, crumbling infrastructure, and rising national debt will be with us no matter who holds the White House or controls Congress – and those problems can’t be tweeted away.”

    Median outlook on Q4 GDP is now 2.2pc year-on-year as consumer demand might underperform in the holiday season due to labor market restraints and the still underperforming inflation. However, in the past quarter, the economy expanded at its fastest pace in two years.

    Goods and services produced in the US rose in price by a gauge of 2.8-3.5pc in the third quarter, mainly due to increases in energy and raw material prices. Wage inflation was subdued in the period, meaning the upbeat macroeconomic figures will not translate into higher consumer purchasing power or improved standard of living.

    Household spending, however, did increase by 3pc in the third quarter compared to an earlier estimate at 2.8pc. The measure accounts for 72pc of the US economic growth, and is crucial in understanding the dynamics of the US economy. However, such an optimistic figure owes a lot to the Census Bureau’s new statistical methods, allowing for a greater data availability.

    Meanwhile, corporate expenditures on machinery shrunk by 4.5pc year-on-year compared to an earlier estimate of —4.8pc, whilst goods stockpiles and trade were flat, meaning the Main Street economy and the nation’s productive forces are struggling.

    Subsequently, the negative dynamics in the labor market became prominent in the outgoing quarter, with jobless clams hitting six-month highs in mid-December. Applications for state unemployment aid rose by 21,000 to a seasonally adjusted 275,000 in the week ending on the 17 December, according to a report by Labor Department.

    However, the amount of jobless filings is still below the 300,000 threshold, suggesting the labor market is still solid. Yet, non-agricultural payrolls only gained 178,000 in November, meaning there is not enough jobs for everyone. Counting in the diversification in professional skills, the situation is further exacerbated by the lack of qualified labor, on the one hand, and the insufficiency of jobs to accommodate the existing unemployed, of the other.

    The number of people receiving unemployment benefits increased by 15,000 to 2.04 mln in early December, which is roughly 1.5pc of the workforce. US labour participation rate has been at its 30-year lowest at just above 60pc since mid-2015.

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