SURGING profits and investment by corporate America and buoyant consumer spending saw the US economy power its way to the fastest growth in nearly two decades in the third quarter.
Bigger than expected upgrades to US gross domestic product (GDP) data yesterday boosted reported growth over the three months to 8.2 per cent on an annualised basis.
The rate of expansion, the strongest for 19½ years, was up a full point from an initial estimate of 7.2 per cent, and more than double the 3.3 per cent second-quarter performance.
In the three months to September, the American economy’s output was more than 2per cent higher than in the previous quarter — against a rise of only 0.6 per cent in the UK.
The resurgence in the US economy was fuelled by a powerful acceleration in the results achieved by American companies.
The GDP measure of profits showed US companies delivering the strongest increase in earnings for more than a decade. After-tax profits rose by an annual 10.6 per cent in the third quarter, putting corporate America on course to earn more than $1 trillion (£588 billion) a year.
Economists’ preferred profits measure, adjusting for swings in capital investment and stocks, jumped 11.8 per cent in the quarter on the heels of a 9.9 per cent rise in the previous three months.
The third-quarter gain was the equivalent of an annualised increase of 47 per cent, matching the bullish forecasts of Wall Street analysts.
The strength of the data was underlined by a surprise jump in US companies’ investment spending, which rose by an annual 14 per cent.
Confidence that the figures showed a revitalised US economy was reinforced by a jump in activity among American consumers. The Conference Board research group said its sentiment index rose to 91.7 for November, the highest reading in a year. US consumer spending rose by an annual 6.4 per cent in the third quarter, only a fraction down on the 6.6 per cent in the previous quarter, the GDP data showed.
The optimistic figures were a big fillip for President Bush, whose poll ratings are flagging ahead of next year’s presidential elections. But the White House, aware of forecasts that growth is likely to slow into 2004, sought to dampen expectations. It said that Americans should not expect growth to continue at full tilt.
With investors also anxious about a new year slowdown, markets took the figures in their stride. The Dow Jones industrial average closed slightly up, by 16.15 points, at 9,763.94. Worries over the sustainability of growth were stoked by weak US housing market data.
Paul Ashworth, of Capital Economics in London, said: “Unfortunately, the strength of growth is likely to prove exceptional rather than the norm.” But most US economists were effusive and said the revival in business investment should bolster further strong expansion. Hopes that the recovery will be shared across the Atlantic were raised as Germany’s key Ifo barometer of business rose for the seventh month in a row to its highest in almost three years.
UK investment slumps
BUSINESS investment in Britain succumbed to a renewed slump in the third quarter, in contrast to the surprise leap in US companies’ capital spending, figures showed yesterday.
After recovering to rise by 2 per cent in the second quarter, the following three months showed capital investment tumbling once more, with a fall of 1.6 per cent wiping out most of the earlier gain. Manufacturing was the key area of weakness, with investment down 5.8 per cent, on the heels of a 5.2 per cent second-quarter fall, to the lowest level since late 1983. Service sector investment also fell, dropping 1.1 per cent.
Opposition parties blamed Gordon Brown, the Chancellor, for damaging the investment climate for companies.
Bigger than expected upgrades to US gross domestic product (GDP) data yesterday boosted reported growth over the three months to 8.2 per cent on an annualised basis.
The rate of expansion, the strongest for 19½ years, was up a full point from an initial estimate of 7.2 per cent, and more than double the 3.3 per cent second-quarter performance.
In the three months to September, the American economy’s output was more than 2per cent higher than in the previous quarter — against a rise of only 0.6 per cent in the UK.
The resurgence in the US economy was fuelled by a powerful acceleration in the results achieved by American companies.
The GDP measure of profits showed US companies delivering the strongest increase in earnings for more than a decade. After-tax profits rose by an annual 10.6 per cent in the third quarter, putting corporate America on course to earn more than $1 trillion (£588 billion) a year.
Economists’ preferred profits measure, adjusting for swings in capital investment and stocks, jumped 11.8 per cent in the quarter on the heels of a 9.9 per cent rise in the previous three months.
The third-quarter gain was the equivalent of an annualised increase of 47 per cent, matching the bullish forecasts of Wall Street analysts.
The strength of the data was underlined by a surprise jump in US companies’ investment spending, which rose by an annual 14 per cent.
Confidence that the figures showed a revitalised US economy was reinforced by a jump in activity among American consumers. The Conference Board research group said its sentiment index rose to 91.7 for November, the highest reading in a year. US consumer spending rose by an annual 6.4 per cent in the third quarter, only a fraction down on the 6.6 per cent in the previous quarter, the GDP data showed.
The optimistic figures were a big fillip for President Bush, whose poll ratings are flagging ahead of next year’s presidential elections. But the White House, aware of forecasts that growth is likely to slow into 2004, sought to dampen expectations. It said that Americans should not expect growth to continue at full tilt.
With investors also anxious about a new year slowdown, markets took the figures in their stride. The Dow Jones industrial average closed slightly up, by 16.15 points, at 9,763.94. Worries over the sustainability of growth were stoked by weak US housing market data.
Paul Ashworth, of Capital Economics in London, said: “Unfortunately, the strength of growth is likely to prove exceptional rather than the norm.” But most US economists were effusive and said the revival in business investment should bolster further strong expansion. Hopes that the recovery will be shared across the Atlantic were raised as Germany’s key Ifo barometer of business rose for the seventh month in a row to its highest in almost three years.
UK investment slumps
BUSINESS investment in Britain succumbed to a renewed slump in the third quarter, in contrast to the surprise leap in US companies’ capital spending, figures showed yesterday.
After recovering to rise by 2 per cent in the second quarter, the following three months showed capital investment tumbling once more, with a fall of 1.6 per cent wiping out most of the earlier gain. Manufacturing was the key area of weakness, with investment down 5.8 per cent, on the heels of a 5.2 per cent second-quarter fall, to the lowest level since late 1983. Service sector investment also fell, dropping 1.1 per cent.
Opposition parties blamed Gordon Brown, the Chancellor, for damaging the investment climate for companies.
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