US economy grows at fastest pace in two years

GDP up at 2.9% annual rate; rises in exports, inventory offset slower consumer spending

WASHINGTON • The United States economy grew at its fastest pace in two years in the third quarter as a surge in exports and a rebound in inventory investment offset a slowdown in consumer spending.

Gross domestic product (GDP) increased at a 2.9 per cent annual rate after expanding at a 1.4 per cent pace in the second quarter, the Commerce Department said yesterday in its first estimate.

That is the strongest growth rate since the third quarter of 2014.

Economists polled by Reuters had forecast GDP rising at a 2.5 per cent annual rate in the third quarter.

Despite the moderation in consumer spending, the third-quarter rise in growth could help dispel any lingering fears that the economy is at risk of stalling. Over the first half of the year, growth had averaged just 1.1 per cent.

Though the Federal Reserve is mostly focused on employment and inflation, signs of economic strength would be supportive of an interest rate hike in December.

Despite the moderation in consumer spending, the third-quarter rise in growth could help dispel any lingering fears that the economy is at risk of stalling. Over the first half of the year, growth had averaged just 1.1 per cent.

The US central bank raised its benchmark overnight interest rate last December for the first time in nearly a decade.

Consumer spending still supported the economy in the third quarter, even as the pace slowed from the second quarter's robust 4.3 per cent rate. Consumer spending, which accounts for more than two- thirds of US economic activity, increased at a 2.1 per cent rate.

A surge in soya bean exports helped to shrink the trade deficit in the third quarter.

Exports increased at a 10 per cent rate, the biggest rise since the fourth quarter of 2013. As a result, trade contributed 0.83 percentage point to GDP growth after adding a mere 0.18 percentage point in the April-June quarter.

There are concerns that the soya bean-driven export growth spurt could reverse in the fourth quarter.

But economists also note that exports of capital and consumer goods have been growing strongly in recent months.

Businesses increased spending to restock after running down inventories in the second quarter. They accumulated inventories at a US$12.6 billion (S$17.6 billion) rate in the last quarter, contributing 0.61 percentage point to GDP growth.

Spending on non-residential structures, which include oil and gas wells, increased at a 5.4 per cent rate in the third quarter, the fastest pace since the second quarter of 2014, after falling at a 2.1 per cent pace in the second quarter.

Investment in mining, exploration, shafts and wells fell at a 31.5 per cent rate in the third quarter after dropping at a 57.4 per cent pace in the second quarter.

Business spending on equipment dropped for a fourth straight quarter, slipping at a 2.7 per cent rate.

While the pace of decline has been ebbing as oil prices stabilise and the US dollar's rally gradually fades, a strong turnaround is unlikely in the near term.

Investment in residential construction fell for a second straight quarter, while spending by the government bounced back.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 29, 2016, with the headline 'US economy grows at fastest pace in two years'. Print Edition | Subscribe