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Economy grows at fastest pace in three years

Economy grows at fastest pace in three years
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The U.S. economy grew at the fastest pace in three years during the third quarter, which is a brisker expansion than initially reported.

The Commerce Department said Wednesday that growth hit an annual rate of 3.3 percent in the July through September quarter, up from the first-reported 3 percent.

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The economy managed to bear the brunt of two major hurricanes that ripped through Texas and Florida.

"This is a solid performance, especially given that Hurricanes Harvey and Irma were drags on growth in the quarter," said Gus Faucher, PNC Financial Services Group’s chief economist.

The latest figure reflects the best performance of gross domestic product (GDP) — a measure of economic output — since the third quarter of 2014 when growth hit a 5.2 percent annual pace.

Over the past four quarters, growth was 2.3 percent, close to the pace throughout most of the economic expansion, which started in 2009. 

The White House and congressional Republicans are trying to pass a contentious tax package before the end of the year that they argue would provide tax cuts to most Americans, help businesses and grow the economy at a faster pace. 

Consumer spending, although slower than the previous three-month period, along with business investment bolstered growth in the third quarter, with help from a pick-up in auto sales.

Business investment rose at a 7.3 percent annual pace, the best showing in nearly a year.

Consumer spending, which accounts for about 70 percent of the economy, grew at a 2.3 percent annual pace, which is slower than the 3.3 percent in the April-June quarter.

“Consumer spending continues to increase at a solid and sustainable pace, and will push the economy forward into 2018,” Faucher said.

“Consumers are in good shape with job growth and wage gains,” he said.

The labor market has continued to add jobs although wage growth is still underperforming despite a low unemployment rate.

Housing was a drag, partly because of the hurricanes, but Faucher expects that the market will be a “near-term positive” from hurricane rebuilding and expanding residential construction amid a shortage of housing inventory.

Trade was a small positive in the third quarter with the global economy showing the most signs of life since the financial crisis.

Inventories added to growth in the third quarter as businesses likely ramped up for the busy holiday season but they could prove a drag in the final quarter of year, Faucher said.

Corporate profits, not adjusted for inflation, rose 4.3 percent in the third quarter to $2.2 trillion at a seasonally adjusted annual rate.

"Businesses are in good shape," Faucher said. "Nominal corporate profits are just below their record high in late 2014, and profits as a share of GDP are well above their long-run average."

The Federal Reserve’s inflation measure increased at annual pace of just 1.5 percent, still stubbornly below the Fed's 2 percent target.

PNC is forecasting economic growth of 2.3 percent for the year and 2.7 percent in 2018, which is well below the Trump administration's aim.  

"The economy is expected to get a temporary boost next year from corporate and personal income tax cuts, but they will have minimal impact on growth over the longer run," Faucher said. 

In 2019 and beyond growth will settle in to its long-run average of 2 to 2.25 percent.

The Commerce Department’s final estimate of third-quarter growth is set for release on Dec. 21.