Stronger than expected economic data strengthened the dollar but seemed unlikely to prompt an immediate taper by the Federal Reserve. Third quarter US GDP growth surprised analysts, growing at a 3.6 percent annual rate to surpass analyst projections of 3.0. The growth rate is the fastest since the first quarter 2012 and makes a significant improvement over the 2.5 percent growth rate during the second quarter, 2013.
Much of the growth can be attributed to businesses accumulating large volumes of inventories in anticipation of a strong consumer support. Business inventories added $116.5 billion in inventories in the third quarter, the largest increase since the first quarter 1998.
In the third quarter, the increase in inventories accounted for 1.68 percent of the growth, the largest contribution since the fourth quarter 2011, and well ahead of economist predictions of a 0.8 percent contribution. Skeptics pointed to the 1.9 percent growth rate without the increase in inventories.
To add confidence to Wednesday’s strong ADP private sector employment report, the Labor Department announced that initial claims shrank by 23,000 to a seasonally adjusted 298,000 last week. This marks the third consecutive week of decline in first-time claims.
A report from the Commerce Department shows consumer spending slipped to 1.4 percent, the lowest rate since quarter four, 2009, and well below the 1.8 percent rate in the second quarter. This raises questions about escalating business inventories in the face of lower consumer demand. This may, however, encourage the Fed to stand down on their tapering initiative until early 2014.
Corporate profits increased by 2.6 percent in the third quarter, below the second quarter’s 3.5 percent rise. US equity markets suffered minor losses on Thursday, continuing a four-day trend.
Britain Economy Grows
Finance Minister George Osborne fired back at opposing Labour Party members after data showed better and earlier than expected growth in 2013 and good expectations for GDP growth in 2014. Osborne told Parliament that he had held the line against further stimulus and growth in recent months was the result of his policies.
The economy is 17 months ahead of Osborne’s projections but opposition expresses concern that Britons are not seeing of feeling the progress. In fact, the general population struggles to afford their lifestyle as the country works through a cost of living crisis.
At the current rate of growth, the deficit would be eliminated by 2018-2019. The Office for Budget Responsibility reports growth in 2013 is 1.4 percent and projects growth of 2.4 percent in 2014, both significant upgrades.
Draghi Holds Interest Rate
ECB President Mario Draghi’s announcement that interest rates would remain at 0.25 percent buoyed the euro. The ECB meeting was the last of 2013. The news discouraged equity investors who hoped for greater easing to facilitate growth in the region.
Draghi voiced support for the flailing economy saying he would hold low rates until the economy improved. But, the region’s unemployment is still excessively high.
The euro recovered after the US news to post a gain for the day at $1.3622. The euro gave way to the yen, settling at 139.0550 yen but gained against the GDB to 0.8374 pence.
The USD lowered against the yen to 101.7600 yen while declining slightly versus the Canadian Dollar to 1.0643. The dollar moved up against the GBP to 0.6128. The Australian dollar also posted gains against the USD at 0.90560, up 0.30 percent.
The dollar index against a basket of currencies stumbled to 80.488.
Thursday was a volatile day on the Forex market.
