Economy surges in third quarter

The U.S. sees its strongest growth in two years.

The U.S. economy grew at its strongest pace in two years in the third quarter, according to government data released Friday morning, helping to allay fears that the world’s largest economy might be stalling following a sustained period of weakness.

Between the months of July and September, the nation’s gross domestic product expanded at an annualized rate of 2.9 percent, slower than before the financial crisis but fast enough to create new jobs and pare down the unemployment rate, economists said. The reading surpassed expectations of economists surveyed by Bloomberg, who had forecast growth of 2.6 percent.

The data showed the nation’s economy bouncing back following months of stubbornly sluggish economic growth. Growth in GDP — a broad measure of America’s economic activity — has remained below 2.7 percent for the previous seven quarters.

“It’s a sigh of relief after just over barely 1 percent growth in the first half of the year,” said Stuart Hoffman, chief economist at PNC.

The report, released by the Commerce Department, combined strong exports with middling consumer spending and weak business investment. Overall, it was steady enough to lift expectations that the Federal Reserve will raise interest rates before the end of the year.

Economists, however, cautioned that the recovery shouldn’t be overestimated, as

growth in the quarter was driven by several events unlikely to be repeated in the near future.

One of those events was a surge in shipments of American soybeans to South America, which suffered from a bad harvest. That helped lift exports 10 percent in the third quarter, the biggest increase in nearly three years. Growth was also buoyed as businesses made new purchases to restock their inventories, after struggling to draw down on large stockpiles of goods in previous quarters.

“Obviously the headline number, 2.9 percent, was better than we’ve seen in several quarters,” said Michael Feroli, chief U.S. economist at J.P. Morgan. “But as we looked at the details, they weren’t as encouraging as the headline might suggest.”

Ben Herzon, an economist at Macroeconomic Advisers, called the third quarter GDP figure “solid” but “not a sign of persistent strength.” Businesses that restocked inventories in the third quarter are unlikely to make as many purchases in the fourth.

And the surge in exports is unlikely to be repeated, especially if the Fed raises interest rates, putting upward pressure on an already strong dollar.

“While it’s pretty good news for the third quarter, it’s not as good for the fourth quarter,” he said. The data comes a little more than a week before many Americans go to the polls in the presidential election. It’s unclear if the GDP data will be enough to sway voter opinions toward either political camp at such a late date.

The growth figures, combined with an uptick in consumer inflation, raised expectations for an interest rate hike in December, though not at the Federal Reserve’s upcoming Nov. 1-2 meeting. Inflation remains below the Fed’s target rate of 2 percent, but is creeping closer to that level.

“On the margin, this report should support the argument that the economy could handle a very small rate of increase,” said James Marple, senior economist at TD Economics.

Economists cautioned that the GDP data is a preliminary reading and will be revised twice more in coming months.