Unexpected surge in US growth boosts Obama

 

Economics Correspondent

With less than a fortnight to go before the US presidential election, Barack Obama’s campaign has been boosted by news that the American economy grew more strongly than expected in the three months to the end of September.

The annual rate of growth in the world’s biggest economy comfortably beat forecasts, coming in at 2 per cent – a dramatic improvement on the annualised figure for the second quarter, when growth had crawled along at just 1.3 per cent.

Driving growth was higher consumer spending, buoyed by a robust quarter for new car sales. Signs of a more lively US housing market also fed through to the residential construction sector, which is growing at an annualised rate of 14.4 per cent.

The growth figures would have been even better if it had not been for a slowing global economy weighing down on US trade, with exports falling 1.6 per cent, the first quarterly reversal in three years. In addition, business investment fell 4.4 per cent, suggesting that firms are sitting on cash, reflecting fears of spending cuts post-election.

But the figures do seem to have been skewed by higher government spending. Rob Carnell, economist at ING bank, said: “What saved this figure from being much, much worse was a somewhat freakish surge in government spending, driven by a 13 per cent gain in national defence spending. Whilst such surges do occur from time to time, the background trend in government spending is at best flat, suggesting that this single item flattered the total by some 0.7 per cent.”

Nevertheless, the better headline growth number will boost Mr Obama’s re-election bid, coming on top of better jobs numbers, with unemployment falling last month to its lowest level during the presidency.

Markets reacted positively. The FTSE 100 recovered earlier losses, closing up 0.14 per cent at 5,813. The French Cac 40 and German Dax markets moved ahead, finishing 0.7 per cent and 0.4 per cent over the day. The Dow Jones made a sharp move upwards on opening, but fell back on concerns over the potential fallout for JP Morgan and Bank of America from lawsuits relating to the valuation of toxic mortgage assets during the financial crisis.

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