Strengthening US growth reflects help from Fed
WASHINGTON — The U.S. economy powered its way to a solid annual growth rate of 3.5 percent from July through September, outpacing most of the developed world and appearing on track to extend its momentum through this year and beyond. The result isn’t a fluke. It turns out the world’s biggest economy did a lot of things right after the Great Recession that set it apart from other major nations. In the view of many economists, those key decisions, particularly by the Federal Reserve, appear to be paying off now.
An improving economy led the Fed on Wednesday to end its stimulative bond buying program. Launched during the 2008 financial crisis, it was an unprecedented and aggressive effort to revive a dormant economy by buying trillions in bonds to reduce longterm interest rates.
Doug Handler, chief U.S. economist at IHS Global Insight, credited the Fed and its bond purchases with helping pull the country out of the worst downturn since the 1930s.
“Its greatest impact was instilling confidence in consumers and the business community that Fed officials were determined to do everything they could to stimulate growth,” Handler said. “To know you have the Fed pulling for you instills confidence.”
Thursday’s government report on the gross domestic product — the economy’s total output of goods and services — added to evidence that the Fed’s efforts have translated into robust job growth and a recovery that appears to be solidifying.
The third-quarter expansion was propelled by solid gains in business investment, exports and the biggest jump in military spending in five years. It followed a 4.6 percent annualized expansion in the second quarter, which marked a dramatic turnaround from the first three months of the year, when a harsh winter depressed activity.
Many economists say they’re confident that the current October-December quarter will be another solid one. They also project that full-year growth for 2015 will hit 3 percent, giving the economy the best annual performance since 2005, two years before the Great Recession began.
“The economy does appear to be accelerating of late,” said Dan Greenhaus, an analyst with investment firm BTIG.
Greenhaus added that the GDP report showed an economy “on a sounder footing today than at any time over the last few years.”
The U.S. landscape stands in contrast to other big economies of the world.
Japan’s GDP contracted at an annualized rate of 7.1 percent in the April-June quarter.
Germany, Europe’s traditional growth engine, risks falling into recession — or growth so weak it holds back the entire euro currency union’s weak recovery.
The French economy posted zero growth in the first two quarters of the year and has revised down its growth forecasts for the year to a paltry 0.4 percent.
Momentum is decelerating even in China, which has posted blistering figures in recent years. Growth in the world’s No. 2 economy waned to a five-year low of 7.3 percent in the third quarter, though the result falls roughly in line with Chinese leaders’ plans for a controlled slowdown.
The U.S. economy is benefiting from a variety of other factors beyond the Fed. For one thing, it’s relatively insulated from weakness overseas. Exports account for less than 14 percent of U.S. activity, one of the lowest such shares in the world.