US economy expected to post stronger growth in 2015, helped by lower oil prices

MarketsAssociated Press

The Commerce Department issues its second of three estimates of how fast the U.S. economy grew in the July-September quarter. The report will be released at 8:30 a.m. EST Tuesday.

GROWTH SOLID: The expectation is that the revised estimate will show the economy grew at an annual rate of 3.2 percent in the third quarter, according to a survey of economists by data firm FactSet.

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GROWTH SLOWER: The government's first estimate put third quarter growth at a slightly faster 3.5 percent. Economists are looking for that figure to be revised down, reflecting slightly weaker activity in such areas as foreign trade, investment spending by businesses on equipment and business construction.

That weakness is expected to offset small gains in consumer spending, housing construction and the restocking of business inventories.

The economy as measured by the gross domestic product has been on a roller coaster this year, starting with a steep slide in activity in the first three months of the year which saw GDP falling at a sharp 2.1 percent rate.

The first quarter drop, the sharpest quarterly decline since early 2008 during the Great Recession, was primarily a factor of a severe winter, which disrupted shoppers, factory operations and other economic activities.

In the second quarter, growth came roaring back at an annual rate of 4.6 percent.

Economists believe activity in the final three months of this year will remain positive, but many expect a bit of a slowdown from the summer, to growth of around 2.5 percent.

For all of 2014, economists believe growth will be around 2.2 percent, matching 2013.

Since the 2007-2009 recession ended, the economy has struggled to regain momentum. But the consensus now is that it will begin to expand more rapidly next year.

Many analysts believe GDP growth will hit 3 percent in 2015, the best performance since the economy expanded 3.3 percent in 2005.

The factors driving that optimism are the same that have dragged on activity this year; government spending and tax policy. By next year, economists believe those policies will begin to pay off and energize growth. Further gains in employment are expected to provide households with more income and boost consumer spending, which accounts for 70 percent of all economic activity.

The sharp drop in oil prices is also expected to put more money in the pocket of Americans as they spend less at the pump.

Weakness overseas and possibly another recession in Europe may still hamstring U.S. growth. Those concerns rattled financial markets earliest this fall, but stocks have since rebounded to new highs amid signs that central banks in Europe, Japan and China will take action to bolster growth.

The Federal Reserve in October ended purchases of bonds aimed at pushing long-term interest rates down, but language used by the Fed shows that it does not expect to begin raising short-term interest rates for a "considerable time." Many economists believe the Fed's benchmark short-term rate, which has been at a record lows near zero for six years, will not be increased until the middle of next year.