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U.S. Economy Expands at Fastest Rate in Two Years

Nov
18

united states flagThe economy of the United States grew at the fastest pace in two years during the third quarter, although analysts say a lot should not be read into the growth yet.

The Commerce Department reported on Friday that gross domestic product (GDP), the broadest measure of output in the economy, expanded at an inflation-adjusted annual rate of 2.9 percent. This was a marked improvement on performance in first half of 2016.

The growth recorded in the July-September quarter was the highest quarterly reading since the same period in 2014, when the economy expanded by 5 percent. It halted a streak of three straight quarters of less than 2 percent growth.

The two-year-high reading was driven by a surge in exports, propelled by improved soybean shipments to South America.

“Some of that surge was due to a one-off spike in soybean exports,” said Paul Ashworth, Capital Economics’ chief U.S. economist. “But it is still a welcome sign that the dollar appreciation in 2014 and 2015 is no longer weighing on exporters.”

Increase in exports surpassed than of imports during the quarter, jumping by 10 percent – the best reading in almost three years.

Change in private inventories was also a driver of the improved growth reading. The GDP component, which had failed to impress in the previous five quarters, added 0.61 percent to the rate of growth in the July-September quarter.

Certain underlying information, however, suggests the high growth rate is not one that may be sustained in the coming quarters. Business investment and consumer spending remained sluggish while home construction market contracted during the quarter.

Chief of U.S. Macroeconomics at Oxford Economics, Gregory Daco, expects the economy to slow to about 2 percent growth during the final quarter of this year.

“Going forward, we expect a modest expansion in economic activity, but we note the economy may be in a fragile equilibrium,” he stated in a research note.

An important measure of business investment climbed 1.2 percent, as companies spend more on structures while reducing expenditure on equipment.

Consumer spending improved at a rate of 2.1 percent, which was about half the pace recorded in the second quarter.

With the U.S. presidential election drawing ever so close, the two parties involved have tried to score points based on the latest economic growth information.

The campaign of Democratic candidate Hillary Clinton said the figures were signs of “real progress” following three consecutive quarters of growth that averaged about 1 percent. It was stated, though, that more work still needed to be done “to build an economy that works for everyone.”

The Republican Donald Trump campaign said growth seen in the last quarter was another confirmation of the need for a change in policies. Dan Kowalski, deputy director of the campaign, noted that growth has not surpassed 3 percent in any full year since President Barack Obama began his tenure.

The U.S. economy has grown annually at an average rate of 2.1 percent since the end of the 2008-09 recession.

The economy expanded at a pace of 2.6 percent in 2016. Latest data doesn’t suggest the rate for this year will be close to that, especially after the dismal performance in the first half of 2016.

Economists predict a 1.6 percent growth for the full year, as reported by Southeast Missourian.

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