Economy growing at fastest pace in 2 years
GDP rises 2.9% in Q3 after lackluster first half of year, sets up rate hike
The economy bounced back from a prolonged slump in the third quarter as exports surged, businesses replenished depleted stocks and consumer spending picked up moderately.
The nation’s gross domestic product, the value of all goods and services produced in the economy, increased at a seasonally adjusted annual rate of 2.9%, the Commerce Department said Friday, the biggest gain in two years. Economists surveyed by Bloomberg had forecast 2.6% growth.
The economy expanded at an anemic 1% average pace the previous three quarters. Business spending has been listless since late 2014 as a result of the oil sector downturn, a sluggish global economy and a strong dollar that drove up export prices. Also, disappointing sales led companies to add little to inventories.
But oil prices have partly rebounded this year and the dollar generally has stabilized.
Companies, in turn, are starting to spend again, at least modestly. Business stockpiling contributed 0.61 percentage points to growth after being a drag on the economy for five consecutive quarters.
Business investment grew 1.2%, up from 1% in the second quarter. Spending on structures jumped 5.4% as oil producers began to resuscitate drilling activity, but outlays for equipment fell 2.7%, the fourth decline in a row. Some firms have suggested they’ve reined in capital spending in part over political uncertainty.
Exports leaped 10% and contributed more than a percentage point to growth, while imports grew 2.3%, narrowing the nation’s trade gap.
Consumer spending, meanwhile, slowed, rising 2.1% after climbing 4.3% in the second quarter. Consumption, which makes up 70% of economic activity, propped up growth in recent quarters as households responded to steady job and income growth, low gasoline prices and reduced household debt.
On the other side of the ledger, housing construction tumbled 6.2% after falling nearly 8% in the second quarter. Goldman Sachs said the decline earlier this year partly reflected an increase in starts of lower- priced homes rather than a drop in the volume. State and local government spending fell 0.7%, its second consecutive quarterly decline.
The Federal Reserve has been looking for an acceleration in economic growth before raising interest rates. Most economists do not expect the Fed to lift its key rate at ameeting next week even if the latest GDP report revealed unusually strong growth. Fed officials are considered loath to boost rates when investors aren’t expecting a move, for fear of roiling stocks, a concern that looms large ahead of the Nov. 8 presidential election.
The Fed is also seeking additional progress in the labor market. The unemployment rate, though close to normal, has been stagnant at about 5% this year.
“This leaves the Fed firmly on track to raise interest rates in December and a hike at next week’s ... meeting isn’t entirely out of the question,” Paul Ashworth of Capital Economics wrote in a note to clients.