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US Economy
US growth revised up to 5%
From the Financial Times of Tue, 23 Dec 2014 14:47:09 GMT
Construction workers work the construction of a new building©AFP

It was full-speed ahead for the US economy in the third quarter of 2014 according to revised data showing growth at an annualised pace of 5 per cent.

The unusually large final revision from the previous estimate of 3.9 per cent, driven by consumption and investment, suggests the economy was accelerating even before the recent plunge in oil prices.

It will ramp up pressure on the US Federal Reserve to consider more aggressive interest rate rises after it made only cautious communication changes at its meeting last week.

The growth reading was the strongest since the third quarter of 2003 and comes after the similarly rapid 4.6 per cent pace of growth in the second quarter. It shows how the US recovery has moved on to a firmer footing this year.

“Today’s US GDP growth was superlative,” said Mike Jakeman, global analyst for the Economist Intelligence Unit. “Job creation is running at the strongest rate for 15 years. More people in work means more income, which means more private spending, which means more business investment, which means more hiring.”

Revisions to consumption added 0.7 percentage points to growth, with around 0.3 percentage points of that coming from healthcare, showing the volatility in the national accounts caused by implementation of President Barack Obama’s healthcare reforms.

The other 0.3 percentage points of upward movement came from business investment. The revisions are particular encouraging because they come from core sources of demand.

However, most economists do not expect such strong growth in the final quarter of the year, and durable goods orders — regarded as a leading indicator of future investment — fell 0.7 per cent in November according to new data on Monday.

“At currently reported levels, we view the data as consistent with a slower pace of investment spending and manufacturing activity,” said Jesse Hurwitz at Barclays in New York.

The S&P 500 also climbed in early trading on Tuesday after closing at its 50th record high of the year on Monday. The Dow Jones Industrial Average also reached 18,000 for the first time.

A combination of US economic strength and a Federal Reserve pledging patience on interest rates has proved an attractive mix for equity investors.

With an 8.6 per cent gain this year, the Dow has lagged the broader S&P 500 which has climbed 12.7 per cent.

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