The American economy expanded at a faster clip in the third quarter than first estimated, but the growth trajectory may not last long,
The New York Times predicted.
A Times analysis concluded the rapid growth pace last quarter came “probably at the expense of economic activity during the current quarter as businesses work off some of the excess stock on their shelves and in warehouses.”
The Commerce Department last week said GDP rose at a 3.6 percent annual rate in the July-September period, up from an initial estimate of 2.8 percent.
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The Times said many economists have cut their estimates for fourth-quarter growth despite the favorable Commerce Department report. Among them, Barclays projected GDP will rise only 1.5 percent during the October-December period.
The economy’s performance in the current fourth quarter of 2013 is expected to help determine the timing of when the Federal Reserve begins its long-anticipated tapering of quantitative easing in asset purchases, a primary prop underneath the economy in recent years.
The president of at least one regional Fed bank is still cautious, the Times reported. "The strong third quarter doesn't make a trend," said Dennis P. Lockhart, president of the Atlanta Fed. "I am not prepared to interpret the revised third-quarter number as an indication that the economy is on a much stronger track — I think we're still on that relatively moderate growth track."
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Bloomberg analysis concluded that a boost from inventories accounted for nearly half the gain in growth in third quarter GDP, while household spending ebbed and business investment in equipment stagnated.
“When you look at the relative optimism you’ve seen in the business surveys, the most logical explanation for the inventory build is a more positive outlook,” said Lewis Alexander, chief economist at Nomura Holdings Inc. in New York. He said “the big missing ingredient is businesses being sufficiently confident to actually boost hiring and do capital spending.”
Nevertheless,
financial blogger Scott Grannis, former chief economist at Western Asset Management, said there was much to like in the Commerce Department report.
“Nominal after-tax profits are at a new all-time high, and have risen almost 9% in the past year. This is very impressive no matter how you look at it,” Grannis wrote.
By Grannis’ estimation, the U.S. stock market is priced for a significant deterioration in the profits outlook, yet profits continue to defy that expectation and keep growing.
“Profits will undoubtedly decline when we suffer the next recession, but that might be years away. Worrying about an imminent recession is characteristic of this entire recovery… But so far, the pessimists have been missing out on a fabulous equity rally.”
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