Growth Debate Left Unresolved by Mixed Report on U.S. EconomyBy
Underneath strong GDP advance are several weak components
Trump, Clinton campaigns see latest numbers very differently
The fastest U.S. growth in two years failed to resolve a debate from the Federal Reserve board room to the presidential campaign trail about whether the world’s largest economy is emerging from an extended funk.
Gross domestic product, the value of all goods and services produced, climbed at a 2.9 percent annualized rate in the July-through-September period following a 1.4 percent gain the prior quarter, the Commerce Department reported Friday.
Beneath the sunny headline figure was more of a mixed picture: Household spending actually slowed more than expected, while inventory rebuilding and a soybean-related jump in exports powered the rebound.
The latest assessment has something for everyone in the days before Fed policy makers meet and Americans cast their votes for a new president. Republican nominee Donald Trump’s campaign said the results were “dismal” and underscored the need for change; an adviser to Democrat Hillary Clinton countered the nation has made “real progress” in recent years. Economists and investors judged that the numbers were good enough to keep the central bank on track to raise rates this year.
“There are pluses and minuses in the GDP report but I’d say there are definitely more pluses,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “Growth is solid enough for the Fed to move ahead in December.”
While the GDP increase was bigger than economists’ median forecast of 2.6 percent, the 2.1 percent pace of consumer-spending growth was 0.5 percentage point weaker than expected. Corporate investment in equipment declined for a fourth straight quarter, the longest such stretch of the current expansion.
Soybean exports -- for which China is the top destination -- surged in the third quarter, with previous data showing shipments tripled in July from the previous month. The jump in the quarter was about 10,000 percent at an annualized rate, tweeted Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd.
With trade and inventories being two of the most volatile components in GDP calculations, a measure stripping those out can provide a better sense of underlying domestic demand. That figure, final sales to domestic purchasers, grew an annualized 1.4 percent last quarter after a 2.4 percent increase from April through June. They were up 1.7 percent from the third quarter of 2015, the smallest year-over-year advance since early 2014.
“All the major sub-components of domestic demand were either disappointing or outright weak,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a note.
Feroli expects growth to “settle down” to a 2 percent pace this quarter. Fed officials, for their part, forecast growth of 2 percent in each of the next two years, according to September projections.
Even so, the presidential campaigns put their best -- or worst -- spin on the latest figures.
“America can do better than the modest growth of 2.9 percent recorded for the third quarter and the dismal growth of 1.5 percent for the past year,” Dan Kowalski, deputy policy director for the Trump campaign, said in a statement. He reiterated Trump’s pledge to create 25 million jobs and boost growth to 4 percent.
Clinton’s campaign highlighted the two-year high for growth and said “it’s clear we’ve made real progress coming back from the crisis,” according to a statement from Jacob Leibenluft, a senior policy adviser. At the same time, Clinton “believes there is still more we need to do to build an economy that works for everyone, not just those at the top,” Leibenluft said.
The government’s estimate of GDP is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.