U.S. economy grows faster than expected

GDP rises at 3.2% rate, best since 2014

Stuck for years in a slow recovery, the U.S. economy may finally be starting to act like its old self.

Numbers released Tuesday show the American economy’s total output of goods and services grew during the third quarter at a faster pace than originally thought. The nation’s gross domestic product increased at a seasonally adjusted annual rate of 3.2%, up from the 2.9% first estimated, the Commerce Department said Tuesday. That’s the largest gain in two years.

The revision was significantly better than the meager gains of 0.8% in the first quarter and 1.4% in the second quarter when the economy was being held back by a strong dollar and weak business investment.

Meanwhile, a closely watched index of consumer confidence increased to 107.1 in November from an upwardly revised 100.8 in October as views of current conditions and the next six months improved significantly, the Conference Board said.

Tuesday’s reading was the highest since July 2007, five months before the Great Recession began.

Consumer spending — which accounts for about 70% of economic activity — increased 2.8%, more than the 2.1% previously estimated.

To be sure, we’ve been teased with good numbers throughout this recovery only to see them fall flat on their face in later months.

What makes this time different?

“For the economy, what has changed is we’ve seen wage growth,” said Brian Jacobsen, chief portfolio strategist for Wells Fargo Asset Management in Menomonee Falls. “Overall wage growth was 2.9% in October 2015. As of October 2016, it’s 3.9%.”

That wage growth is adding to what appears to be an overall positive assessment among consumers of the U.S. economy’s health.

“Maybe it was relief that the

political campaigns were done, or maybe people are broadly excited to see what’s in store for the new (Trump) administration,” Jacobsen said. “Whatever it is, consumer and business sentiment is improving and it should make the third-quarter economic rebound more than just a flash-in-the-pan.”

The U.S. stock market has certainly reacted positively, posting big gains since the election. Record highs on market indexes have been frequent. While there is plenty of psychology involved, there are also real numbers.

“... Suddenly you get a president-elect and Congress that looks like it will cut corporate taxes,” Jacobsen said. “You could see earnings increase 10% based on tax cuts alone.

“It’s more about math than exuberance.”

“As long as the president-elect tweets more about building bridges rather than building walls, I think investors will keep focused on the prospect of lower taxes and regulatory relief.”

Beyond stocks, there are other signs that point to sustained growth.

“We’re in the eighth year of uninterrupted economic recovery; unemployment is below 5%; household incomes jumped last year; house prices have been rising; if you have good credit, you can borrow for next to nothing ... ,” Alan Purintun, principal and portfolio manager at Oarsman Capital Inc. in Milwaukee, said in an email. “We heard a lot — rightly, in my view — about the uneven distribution of the economy’s fruits; but on average things are actually pretty good.”

Perhaps the lone holdout is business investment, which remained flat in the third quarter.

Business investment in new plants and equipment edged up at an annual rate of just 0.1% in the third quarter. This sector has been held back by steep cutbacks in spending by energy companies responding to the plunge in oil prices.

But sentiment may have finally shifted enough to get businesses spending again, Jacobsen said.

“Business investment has been dragged down by the energy sector,” he said. “2017 could be the year we see businesses reinvest for growth, which would create a virtuous cycle of better productivity growth, higher wages, and better sales.”

An overall amped-up pace of recovery may actually have some staying power, said Abdur Chowdhury, an economics professor at Marquette University who is the former chief economist for the United Nations Economic Commission in Europe.

Chowdhury said he was expecting third quarter GDP growth of 2.5%.

“A pickup in GDP was expected,” he said. “I think what was not expected was 3.2%.”

“We have been in an expansion since summer 2009,” Chowdhury added. “It has been a very slow recovery, but it was an expansion.

“I think that will continue for some time.”