The Commerce Department reports that the nation’s gross domestic product (GDP) grew at a 2.7 percent annual rate in October. The rate accelerated because of a smaller trade deficit, an increase in business inventory, and a 9.3% increase in government spending. These factors offset a narrower gain of 1.4% in consumer spending — down from an initial estimate of 2%.
The adjusted number for the consumer spending represents the lowest personal consumption expenditure rate in the last year.
In the second quarter of 2012, the GDP growth rate was 1.2%.
Commerce adjusted wage and salary gains for the quarter down to $30.4 billion compared to $43.3 billion and a previously estimated annual rate of 0.8 percent to 0.5%. The agency also revised second quarter wage and salary data down more than 42%, from $55.2 billion to $23.3 billion.
Although the unemployment rate has remained steady at 7.9%, analysts expect the job market to reflect the effects from Hurricane Sandy for some time. In November, companies added 100,000 workers to payrolls compared to 171,000 in October, based on information provided by the Bloomberg survey.
Despite the downward revisions in wage and salary data, consumer sentiment rose to a four-year high in November. According to the Conference Board, consumers’ improved outlook on the economy has a direct correlation with rising home values. Mortgage interest rates, which continue to set record lows, have spurred a recovery in the housing market.
National Retail Federation reports that consumers expressed that confidence online and in brick-and- mortar retailers as holiday sales receipts totaled $59.1 billion for the four days after the Thanksgiving holiday–a 13% increase.
Original business inventory estimates subtracted 0.12 percentage point from GDP. The revised figures show inventories actually added 0.77 percentage point to GDP expansion. Economists caution against reading too much into the upward revision. In the absence of higher demand, companies may reduce fourth quarter production.
The recovery in the housing market provides a source of positive news about the housing industry and prospects for growth in the general economy. Existing and new homes sales, higher homes values and new construction permits and completion are encouraging, says the Fed.
Nonetheless, economic growth continues to cast a dark cloud over the housing market’s revival this. Most economists concur that the an annual GDP growth rate of 3% or more is necessary to bring down the unemployment rate and create a strong economy.
The latest GDP report supports the Federal Open Market Committee’s (FMOC) intentions to take additional steps to intervene in the sluggish economy in an attempt to fuel expansion and bring down the stubborn unemployment rate. The Fed efforts may provide support to consumer spending, which makes up more than two-thirds of consumption in the domestic economy.