US economy enjoys best growth in more than a decade (+video)
An increase in consumer spending has helped drive the best six months of GDP growth since 2003, although public confidence in the economy has dropped as wage and salary increases remain low.
The US economy is enjoying a period of sustained growth not seen in more than a decade, although public confidence in the economy continues to slide as wage and salary increases remain slow.
America's gross domestic product, the value of all goods and services produced in the country, rose at a 3.9 percent annualized rate in the third quarter, up from an initial estimate of 3.5 percent, according to figures released Tuesday by the US Commerce Department. Following a 4.6 percent increase in GDP in the second quarter, this is the biggest back-to-back advance since late 2003, according to Bloomberg.
An increase in consumer spending was a key driver for the sustained GDP growth. Consumer spending accounts for about 70 percent of the US economy, according to Bloomberg, and it grew at a 2.2 percent annualized rate in the third quarter, compared with the previously estimated 1.8 percent. Low gasoline prices in particular have encouraged consumers to step up auto purchases, Bloomberg reported. The automobile industry is in position for an unprecedented sixth straight annual sales increase next year.
US GDP is likely to grow at a similar pace over the final three months of the year, Brian Jones, a senior US economist at the French financial firm Societe Generale's New York office, told Bloomberg.
"We’re probably on pace for another 3 percent to 3.5 percent growth in the final three months," Mr. Jones said.
Although an increase in consumer spending has helped invigorate the US economy, actual wages and salaries have not grown as quickly. The Commerce Department report included revisions to second quarter data indicating the previously estimated increase in wages and salaries was cut almost in half. Wages and salaries rose by $51.9 billion, according to the revised figures, down from an initially reported $102.5 billion gain, according to Bloomberg.
Stagnating income for many Americans has been described as a millstone weighing down the country's economic recovery. With the economy largely dependent on consumer spending to keep it functioning, the financial health of the nation relies on Americans having disposal income to spend. However, real income for the bottom 90 percent of Americans grew 0.7 percent from 1986 to 2012, according to The Economist.
Wage growth is also an important driver of public perception of the economy, a fact that was apparent in the midterm elections earlier this month. A majority of voters described the economy as either “not so good” or “poor,” according to U.S. News & World Report.
It can be hard for Americans to notice the effects of consistent GDP growth in their day-to-day lives, but paychecks are a different story. Economic improvement appears to have been too slow and incremental to seize the attention of many Americans, especially at the voting booth.
Guy Berger, an economist at brokerage firm RBS Securities Inc., told Bloomberg that while there has been a "meaningful change" in wages and salaries recently, "it's not very much so far."
"You’re not going to be particularly happy given how much of a decline you saw in the prior few years," he added.
Gallup's US Economic Confidence Index dropped four points this week, with 31 percent of Americans describing the economy as "poor" and 54 percent saying the economy is getting worse. Still, the polling service notes, the weekly score was one of the highest in 2014.
"If [economic] confidence again increases and recovers from the dip last week, it could enter positive territory for the first time since daily tracking began in 2008," Gallup said.