The U.S. economy looks set to weather the headwinds from Hurricane Sandy and the budget battles in Washington after picking up speed in the third quarter.
Gross domestic product probably increased at about a 2.9% annual rate in July-September, according to economists from Goldman Sachs Group Inc. and Barclays Plc. That would be the fastest quarterly growth this year, beating the Commerce Department’s initial estimate of 2%.
Help is coming from a housing recovery, strengthening job market and healthier household finances that are driving gains in consumer confidence and spending. While the damage from Sandy and an anticipated tightening of fiscal policy mean growth will decelerate this quarter and next, the world’s largest economy may emerge on stronger footing in the second half of 2013.
One immediate restraint is the fallout from the largest Atlantic storm ever to hit the U.S. Retail sales fell in October for the first time in four months as the hurricane hurt receipts at some stores. The 0.3 percent drop followed a 1.3 percent gain in September that was larger than previously reported.
Sandy may trim as much as 0.5 percentage points from fourth-quarter GDP, according to one expert, while another projects a "downside risk" of as much as 0.3 points.
A bigger concern is more than $600 billion U.S. of tax increases and government spending cuts slated for the start of 2013 unless Congress acts. Maki projects about $200 billion U.S. of fiscal tightening; under these circumstances, “solid momentum” entering the final quarter of the year would give the U.S. enough of a cushion to sustain growth.
Concern over the budget showdown between President Barack Obama and the Republican-controlled House of Representatives has helped push the Standard & Poor’s 500 Index down 4.8% since Obama’s Nov. 6 re-election.
