The US economy grew at its fastest rate in nearly two years in the third quarter of 2013 after revisions boosted the annualised rate of expansion from 3.6 to 4.1 per cent, days after the Federal Reserve said it would start scaling back its $85bn-a-month monetary stimulus.

Critically, almost all of the upward revision was due to stronger consumption, which grew at an annualised rate of 2 per cent rather than 1.4 per cent. This suggests greater underlying momentum in the economy.

US stocks reacted strongly to put the S&P 500 on pace for its biggest weekly gain in two months, while the dollar was stronger and Treasury yields hovered just below two-year peaks. The S&P was up 0.5 per cent to close at 1,818.31 in New York.

The revision in growth adds to a series of recent data that suggests the US economy is accelerating and validates the Federal Reserve’s decision this week to taper its asset purchases from $85bn to $75bn a month.

The figures provide a fresh hint that 2014 growth could be better than ex­pected as the economy finally accelerates after a five-year struggle.

“The US economy has flattered to deceive several times in recent years, looking like it was set for a period of faster growth only to fall flat,” said Joseph Lake, US analyst for the Economist Intelligence Unit.

But Mr Lake says he thinks this time is different. “We expect the US to embark on a sustained economic upswing in the coming quarters.”

A rapid increase in business inventories was still a big reason for growth in the third quarter, contributing 1.7 percentage points of the total expansion.

But the consumption revision meant that final sales of domestic product, which is a better indicator of underlying demand in the US economy, was revised up from an annualised increase of 1.9 to 2.5 per cent.

That suggests the third quarter was solid, rather than mediocre, and boosts the chances of sustained growth into the fourth quarter because businesses are less likely to have excess inventories.

Most data for the fourth quarter so far has been strong, with growth in payrolls running at close to 200,000 a month, and strong numbers on retail sales, industrial production and homebuilder confidence.

Amid better news on US growth, Eric Rosengren, president of the Federal Reserve

Bank of Boston, and the lone dissenter this week when the US central bank decided to scale back its asset purchases, sought to explain his opposition.

Mr Rosengren said his assessment of the economy had “brightened” recently but he did “not yet have sufficient confidence in this outlook to risk the removal of any monetary accommodation at this time.”

“My hope and my forecast is that we will continue to accumulate evidence indicating a strengthening economy in coming months,’ Mr Rosengren added. “Thus, my decision to cast a dissenting vote was focused on counselling patience in removing monetary accommodation,” he said.

The decision by the Fed this week came as Ben Bernanke, Fed chairman, nears the end of his tenure, to be succeeded by Janet Yellen, the vice-chair of the US central bank. On Friday, the Senate voted to advance her confirmation, but final approval was delayed until January 6. She is expected to take over from Mr Bernanke in February.

The White House – keen to go on the front foot after a tough two months marked by the botched rollout of President Barack Obama’s 2010 healthcare law – has already trumpeted the recent acceleration in America’s economic recovery.

“The economy is finishing 2013 in a stronger place than where it began the year, though more work remains to grow the economy, create jobs, and strengthen the middle class,” said Jason Furman, chairman of the White House council of economic advisers, in a blog post on Thursday.

“This is especially notable given the general fiscal environment, including the onset of the sequester in March, and the government shutdown and debt limit brinkmanship in October,” Mr Furman wrote.

This week US Congress also took a step back from the brink of another fiscal crisis when it passed a bipartisan budget deal to set spending levels for two years.

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article