US Third Quarter GDP Growth Revised Up to 3.3 Percent, Above Full Potential

For the first time since the fourth quarter of 2007, the US economy is expanding above the maximum output level estimated by the Congressional Budget Office as sustainable. Growth far above this level can cause the economy to overheat.

GDP growth was revised up to 3.3% for the third quarter, from an already strong 3% original estimate. The economy expanded by 3.1% in the second quarter.

More good news was generated by Fed Chair Janet Yellen's testimony in Congress on November 29. In prepared remarks, she downplayed the risks of financial instability, describing overall vulnerabilities in the financial sector as "moderate" and reiterating the view that inflation will stabilize at around 2%, the target rate, in the medium term.

Sweet spot

The US Bureau of Economic Analysis attributed the strong showing to increases in consumer spending, inventory investment, business investment, and exports. 

Corporate profits also grew strongly, at 4.3%, compared with 0.7% in the second quarter. "Profits from the rest of the world increased 4.5% after decreasing 2.5%," said the bureau.

This suggests that the synchronized expansion in the rest of the global economy is continuing as well. On November 30, China reported that its Purchasing Managers' Index stood at 51.8 points in November, more than the expected 51.4 points. The world's second largest economy appear to be on track to surpass its official target of around 6.5% GDP growth in 2017.  

"It's the sweet spot," Beth Ann Bovino, S&P Global Ratings' chief US economist, told The Wall Street Journal, about the economic expansion in the US. "We'd like to be there for some time, but let's see how long will last."

 

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