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Economy Grows in the Third Quarter, with Manufacturing Production Up, Too

GDP increases at a 2.1% annual rate, slower than the second quarter but up from initial estimates, with the manufacturing sector right in line and forecast for more growth.

The U.S. economy grew more strongly than first thought in the third quarter on higher investments in businesses and housing that offset a bit less momentum in key consumer spending.

In the July to September quarter, gross domestic product expanded at a 2.1% annual pace, according to the Commerce Department. GDP growth in the quarter was initially estimated at 1.5%, and though now seen stronger, it still marked a slowdown from the robust 3.9% expansion in the second quarter.

The upward revision was slightly higher than analysts expected, but, overall, the fresh data was less positive. The revision was largely due to a smaller decrease in private inventory investment from the second quarter than previously estimated, which offset downward revisions, notably to consumer spending.

The report came three weeks before the Federal Reserve holds its final monetary policy meeting of the year. Market expectations are high that the Fed will raise its benchmark interest rates on December 16 from near zero, where they have been pegged since December 2008 to support the economy’s recovery from the Great Recession.

“Bottom line: Stronger growth but a weaker mix, with the biggest changes in inventories, revised up, and consumption, revised down,” said Chris Low of FTN Financial. “From the Fed’s perspective, the revision doesn’t mean much. It’s strong enough to allow a rate hike, but not strong enough to demand one.”

Meanwhile, in the Manufacturing Forecast

The manufacturing sector is expected to increase production through 2017, according to a new forecast from the MAPI Foundation. Strong consumer demand spurred by job growth is the anticipated major driver.

The MAPI Foundation quarterly report, which was also released Tuesday, predicts that inflation-adjusted gross domestic product will expand 2.9% in 2016, 2.7% in 2017 and 2.5% in 2018, both on par with the previous quarterly forecast. Manufacturing production is also expected to surpass the 2015 growth rate of 1.8%, with the report calling for 2.6% growth in 2016, 3.0% in 2017 and 2.8% in 2018.

“There are strong deflationary pressures that are spreading, such as lower global energy prices, China’s economic restructuring, and a forecast for slow price recovery in commodities,” MAPI Foundation chief economist Daniel J. Meckstroth said. “Also, we are not anticipating negative shocks such as the harsh winter and California port strikes to repeat themselves in 2016. Strong domestic demand buffers the United States from the rest of the world, where global manufacturing continues to slow.

“We expect a modest acceleration in manufacturing growth over the next two years before it decelerates. Consistently strong job growth is driving the economy. New workers mean more income, which translates into more spending.”

Meckstroth expects the strong dollar to reduce GDP growth slightly each of the next three years, with a negative effect on inventories and net exports.

Copyright Agence France-Presse, 2015

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