Economy Expanded at Rate of 2.9% in Third Quarter of 2016

“We welcome the seeming turning point in the inventory cycle, but in general, we prefer to discount the contribution from inventories and do not expect that this rebound will become a true source of growth”, says Barclays Investment Bank economist Rob Martin in an email statement.

“The consumer should continue to power the economy”. – Ian Shepherdson, chief economist, Pantheon Macroeconomics. Advance goods trade balance released last week showed that the goods trade deficit narrowed to $56.1 billion in September from a revised $59.2 billion in August, belying expectations for a widening of the deficit to $60.5 billion.

Ben Herzon, an economist at Macroeconomic Advisers, called the third quarter GDP figure “solid” but “not a sign of persistent strength”.

Just focusing on the quarter-to-quarter change ignores the fact that this recovery, along with the recent overall growth performance of the USA economy, reflects the fact that the United States…and other parts of the developed world…is experiencing a period of slow improvement in labor productivity and this seems to be dominating the growth scene. “As such, this leaves the Fed firmly on track to raise interest rates in December and a hike at next week’s FOMC meeting isn’t entirely out of the question”. The US central bank raised its benchmark overnight interest rate last December for the first time in almost a decade. That was the strongest growth rate since the third quarter of 2014 and handily beat a forecast of a 2.5 per cent rise in a Reuters poll of economists.

“The economy continues to move forward”, Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, said before the report. While this will help support construction spending in certain categories, including distribution centers, nonresidential investment in structures is likely to expand only slowly in early 2017.”. Still, the latest GDP growth rate is implying accelerated job gains and thereby boosting income for households. Soybean exports surged as US farmers took advantage of gaps in the global market opened up by poor harvests in Brazil and Argentina.

Export growth of 10 percent in the July-September period drove the expansion, and also was the strongest pace in two years.

The report showed that the boost to growth came from inventories – encouraging after it acted as a drag for five quarters – and from trade.

Business fixed investment expanded by 1.2%, contributing 0.12 percentage points to GDP. That follows three quarters of negative investment contributions and is the best showing since the first quarter of 2015.

Inventories contributed to growth by 0.61 points after deducting from the growth in the previous quarter.

Friday’s release of U.S. gross domestic product (GDP), measuring the overall growth of the United States economy, came in higher than expected at 2.9% annualized, above the 2.6% projected and the strongest number in two years.

Meanwhile, business spending remained weaker than desired, mirroring recent cautiousness seen in other economic indicators. While the pace of decline has been ebbing as oil prices stabilize and the dollar’s rally gradually fades, a strong turnaround is unlikely in the near-term.

Democrats hailed the GDP rebound after three straight quarters of anemic growth averaging around 1 per cent.