Ex­ports boost US growth; con­sumer spend­ing slows

Third-quar­ter GDP in­creases at 2.9% rate

Kuwait Times - - BUSINESS -


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.


FORT LAUD­ERDALE, Florida: This file photo taken on June 23, 2016 shows ship­ping con­tain­ers off­loaded from a cargo ship at Port Ever­glades.

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