The domestic economic landscape improved markedly in the third quarter, emerging from a first half that did not quite live up to expectations. The Bureau of Labor Statistics raised its third estimate of second quarter gross domestic product (GDP) to +4.6%, a robust about-face from the -2.9% contraction of the first quarter. The reversal did not come as a surprise, as many economists had noted that economic data was exhibiting strength in many segments. The gains in the third quarter were led by an increase in consumer spending, which was fueled by an improving employment situation, record stock prices, and firming housing values. The employment situation was somewhat mixed during the quarter, with an average of about 207,000 jobs added each month during the quarter. The unemployment rate also declined to 6.1%, a cycle low.
Globally, the recovery has been a bit more challenging. While the U.S. and Canada have seemingly turned the corner towards acceleration, the eurozone’s economy has had a difficult time generating steam, and continues to be hampered by high levels of unemployment and large amounts of debt. The recent decline in the euro should help exports, and could perhaps serve as a catalyst for sustained improvement. Japan’s economy has slowed considerably following an April sales tax increase.
Economists expect China to remain a key driver of global growth going forward, but policymakers will be seeking to manage an unwinding of the credit bubble and a cooling off of the property market without adversely impacting other areas of the economy. Still, recent data suggest that the economy will end the year below the 7.5% annual growth target, and policymakers may take further stimulus measures to mitigate a further slowdown.
During the third quarter the Federal Open Market Committee (FOMC) affirmed its commitment to keeping the fed funds rate near 0% for a “considerable time,” language that many economists believe will be altered during the committee’s December meeting. In addition, the FOMC further reduced its asset purchase program, and stated that it will end in October. A growing consensus among economists is that the FOMC will begin to raise the fed funds rate sometime in the latter half of 2015.
The domestic economic landscape in the second quarter remained mixed, after the effects of severe weather in the first quarter lingered. The Bureau of Labor Statistics lowered its third estimate of first quarter gross domestic product (GDP) to -2.9%, reflecting a broad-based contraction in many areas of the economy, including consumer spending, exports and business investment. It was the largest decline in GDP in five years. The employment situation continued its trend of modest improvement, with an average of about 200,000 jobs added each month during the quarter. In addition, payroll employment finally exceeded the pre-financial crisis peak, having recovered the 8.7 million jobs lost in the recession.
– Posted by Chris
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