US economy grows 4.1 percent in third quarter: Stage set for a better 2014?

The third quarter's 4.1 percent growth rate is only the second time in the 4-1/2 year economic recovery that quarterly GDP growth topped 4 percent. Forecasters see in the report more evidence that the economy is gaining traction.

Pablo Martinez Monsivais/AP/File
President Obama speaks at ArcelorMittal, a steel mill in Cleveland, Nov. 14, 2013. The latest GDP news, released Friday, Dec. 20, 2013, by the Commerce Department, shows the US economy grew at a 4.1 percent annual rate in the third quarter.

America’s economy grew at a 4.1 percent annual rate in the third quarter, showing momentum that could help the new year be a better one for US workers.

A growth rate topping 4 percent has been seen in only one other quarter since the nation’s stop-and-start recovery from recession began in the middle of 2009. That other moment came two years ago, when 2011 finished off with a 4.9 percent advance in gross domestic product (GDP).

The latest GDP news, released Friday by the Commerce Department, doesn’t mean the economy is suddenly roaring into high gear.

In both the third quarter of 2013 and that earlier high-growth quarter in 2011, a temporary buildup in corporate inventories was a primary cause of the big numbers. Inventories are a volatile part of the GDP figures: What they “give” in one quarter can be taken away in subsequent ones.

But the new growth figure is welcome nonetheless – amplifying the message of forecasters who expect the recovery to gain traction in the new year. That's because consumer spending appears to be strengthening, too.

“The third quarter’s stellar growth rate is not destined to be repeated [in the fourth quarter], but is it a harbinger of a better year for the economy in 2014,” Doug Handler, chief US economist at IHS Global Insight in Lexington, Mass., says in a report Friday.

In the fourth quarter, GDP growth is expected to be cooler, due in part to the partial government “shutdown” that dampened confidence in October.

But in a recent survey, business forecasters said they expect America's economy to grow 2.8 percent next year, adjusted for inflation. That compares with their estimate that 2013 will clock in with 2.1 percent growth for the calendar year.

With gains in GDP come hopes for an improving job market. The official unemployment rate has fallen to 7 percent in the most recent Labor Department estimate. Some forecasters see it dropping to 6.5 percent by the end of 2014, even as improved hiring pulls more people from “discouraged” status back into the ranks of job seekers.

The third-quarter number for GDP was revised upward by half a percentage point, compared with the Commerce Department’s prior estimate. The reason was essentially strength in underlying consumer demand. (The large contribution from inventories didn’t change from one estimate of GDP to the next.)

Health care was the big factor behind the consumer-spending adjustment for the third quarter, Mr. Handler says, but he points to other recent indicators that show broader consumer momentum.

“With … October and November’s solid retail sales data, we can confirm the consumer’s newly expanded role in the economy,” he writes.

If the consensus forecast for 2014 proves correct, it wouldn’t mean a quick end to Americans’ post-recession trials. But it would mean faster progress, even at a time when the Federal Reserve is starting a long-awaited “taper,” downsizing it’s unusual monetary stimulus.

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