US Economy Stronger than Expected in Q3 of 2017

The US economy expanded at an annual pace of 3% in Q3 of 2017, which was stronger than expected.

The growth extended the robust activity reported in Q2, when GDP grew at an annual pace of 3.1%.

Analysts had been expecting a sharp slowdown after back-to-back hurricanes battered several states in the quarter.

However, consumer spending held steady, despite a drop in homebuilding investment.

According to the Commerce Department, together the two quarters mark the strongest six months of economic activity for the US since 2014.

Consumer spending, which increased at a hearty 3.3% rate in the second quarter, slowed to 2.4% growth – a deceleration probably caused by the hurricanes.

Construction spending also fell, but exports and business investments in equipment and intellectual property accelerated from Q2.

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Economists warned that estimates of business inventories, a major factor in the GDP rise, can vary significantly quarter-to-quarter.

Excluding that category, GDP – a broad measure of goods and services made in the US – increased at an annual pace of 2.3%.

The Commerce Department cautioned that its figures did not capture all the losses caused by the storms, which caused widespread closures of factories, offices and airports in states such as Florida and Texas.

Its GDP estimates, for example, do not measure activity in US territories, such as Puerto Rico, which suffered some of the most severe damage.

The Commerce Department estimated that storm-related damage to fixed assets, such as homes and government buildings, totaled more than $131 billion.

It also said it expected the government and insurers to pay more than $100 billion in insurance claims, with foreign companies accounting for more than $17.4 billion.

Commerce Department Secretary Wilbur Ross claimed Friday’s GDP report a sign of progress, calling it a “remarkable achievement in light of the recent hurricanes”.

President Donald Trump has made hitting annual GDP growth of 3% a goal, and pledged tax cuts and other policies intended to reach that pace or higher.

On a year-on-year basis, GDP was up 2.3%, the Commerce Department said in its report, which is an advance estimate that will be revised as more data is collected.

That pace is roughly in line with US expansion since the 2007-2009 recession.

Economists said the underlying economic strength shown in the report makes it more likely that central bankers at the Fed will raise interest rates again by the end of the year, as expected.

The price index for consumer spending, a closely-watched measure of inflation, increased at 1.3% in Q3, excluding food and energy. That remains below the Fed’s 2% target.