Exports boost US growth; consumer spending slows
Third-quarter GDP increases at 2.9% rate
WASHINGTON:
US economic growth accelerated to a 2.9 percent annual rate in the third quarter boosted by a big jump in exports and solid consumer spending, the Commerce Department reported yesterday. Coming just 11 days before the presidential election in which the economy has been a major issue, the GDP data showed the strongest growth in two years, and beat the consensus forecast of 2.5 percent.
The strong report may increase the pressure on the Federal Reserve to raise interest rates this year, something it has not done since Dec 2015. Most analysts expect the Fed to do nothing at its meeting next week, and wait until December to act. Lawrence Yun, chief economist at the National Association of Realtors, cautioned against precipitous action, since the economy’s expansion after the financial crisis has averaged only 2 percent.
“The Federal Reserve could be tempted to hurry the interest rate hike because of the good GDP number,” he said, but policymakers should keep in mind the economy’s “subpar performance” in the past six years. In this initial or advance estimate of gross domestic product, the Commerce Department said that export growth of 10 percent in the JulySeptember period, the biggest jump since late 2013, drove the expansion. Many analysts revised their forecasts upwards this week, to as high as 3.0 percent, especially following the release of advance trade data Wednesday. Personal consumption also helped growth, as spending rose 2.1 percent in the period, though that was just half the rate of the prior quarter.
Federal spending rose 2.5 percent after declining in the previous two quarters. US stock markets rose in opening trading following the report while US Treasuries yields and the dollar strengthened, but all moved back shortly thereafter to remain flat.
Exaggerated by Soybean Exports
Despite the strong headline number, some economists say the report exaggerates growth and could be revised lower over the next two months. “These data likely overstate growth significantly,” Ian Shepherdson, chief economist at Pantheon Macroeconomics said in a research note. He pointed to a surge in soybean exports, saying “the headline GDP number looks good but the soybean export surge will reverse in Q4, and that’s a significant headwind”.
Jim O’Sullivan, chief US economist at High Frequency Economics, agreed. “The farm-led surge in exports in particular looks extreme. Even so, the data only reinforce the impression that the trend in growth remains strong enough to keep the labor market improving - the key precondition for more Fed tightening.” White House chief economist Jason Furman noted that the recovery in oil prices in recent months meant there was less of a drag on the economy from oilrelated investments. In addition, “business fixed investment also contributed positively to GDP growth, though it continues to be restrained by slower global growth,” Furman said in a statement. Private investment jumped 3.1 percent in the third quarter, the first increase following three quarters of declines. NAR’s Yun, however, said: “On the downside, residential investment fell slightly as housing starts and home sales were stalling a bit in the third quarter.” The key inflation indicator in the GDP report, the personal consumption expenditures price index, increased at a 1.4 percent annual rate, while the rate excluding food and energy prices rose 1.7 percent, both slightly slower than the second quarter. The Fed has focused its easy money policy on boosting inflation to 2.0 percent, based on the broader PCE price index.