United States: Fed cuts growth forecast despite stronger-than-expected expansion in the third quarter
November 23, 2010
In the third quarter, gross domestic product increased 2.5% at a seasonally adjusted annualised rate, according to the 23 November estimate released by the Bureau of Economic Analysis (BEA). The figure was up from both the 2.0% expansion previously reported as well market expectations of 2.4% growth. The upgrade was broad-based with both domestic and external demand improving. Personal consumption expenditures were revised upwards, from the 2.6% expansion initially reported to 2.8%. In the same vein, growth in gross fixed investment was stronger than previously estimated, expanding 1.7% (initially reported: +0.8% qoq saar) amid higher growth in non-residential investment (+10.3% qoq saar) and a less pronounced contraction in residential investment, which dropped an annualised 27.5% over the previous quarter. In the external sector, exports expanded 6.3% (previously reported: +5.0% qoq saar) while imports added 16.8% (previously reported: +17.4% qoq saar). As a result, the net contribution from the external sector to overall growth increased from minus 2.0 percentage points initially reported to minus 1.8 percentage points. In the minutes of FOMC's November meeting, the Fed unveiled its revised projections of the main economic indicators for the 2010-13 period. Monetary authorities expect the economy to expand between 2.4% and 3.5% this year, down from the 3.0% to 3.5% range reported in June. Consensus Forecast panellists broadly share the Fed's assessment and see GDP expanding 2.7% this year. For 2011, the panel anticipates economic growth to moderate to 2.4%, which contrasts the Fed's expectation of economic growth accelerating to a 3.0% - 3.6% range (June's projection: 3.5% - 4.2%).