US economy picks up pace even as election looms
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.
Coming just 10 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 2.5pc.
Democratic candidate Hillary Clinton’s campaign hailed the report as proof of the progress made in recovering from the global financial crisis, and said she has a plan to create more jobs by investing in infrastructure.
“With more than 15 million jobs created since early 2010 and real median incomes growing more than 5pc last year, it’s clear we’ve made real progress coming back from the crisis,” Clinton senior policy adviser Jacob Leibenluft said in a statement.
There was no immediate reaction from the campaign of Republican candidate Donald Trump, who has repeatedly charged that the US economy is “broken” and says his proposals will accelerate growth.
The strong GDP report may increase the pressure on the Federal Reserve to raise interest rates this year, something it has not done since December 2015. Most analysts expect the Fed to do nothing at its next meeting on November 2, and wait until December to act.
But a key inflation indicator in the GDP report, the personal consumption expenditures price index, slowed from the second quarter to a 1.4pc annual rate. The Fed has focused its easy money policy on boosting inflation to 2pc, based on the broader PCE price index.
Lawrence Yun, chief economist at the National Association of Realtors, cautioned against a precipitous rate increase, since the economy’s expansion after the financial crisis has averaged only 2pc.
“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 10pc in the JulySeptember period, the biggest jump since late 2013, drove the expansion.
Personal consumption also helped, as spending rose 2.1pc in the period, though that was just half the rate of the prior quarter.
Federal spending rose 2.5pc after declining in the last two quarters. 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.
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 labour 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 oil-related investments.
In addition, “Business fixed investment also contributed positively to GDP growth, though it continues to be restrained by slower global growth,” Mr Furman said.