The Economy

U.S. Economy Picks Up Steam in Third Quarter

After only a 1.4% increase in the previous quarter, GDP rose 2.9%, topping economists' estimates even though consumer spending growth eased to 2.1%.
Matthew HellerOctober 31, 2016
U.S. Economy Picks Up Steam in Third Quarter

The U.S. economy surged in the third quarter, growing at the fastest rate in two years and easing concerns that it was at risk of stalling.

Gross domestic product increased at a 2.9% annual rate after rising just 1.4 percent in the second quarter, the Commerce Department said. Economists had expected 2.5% growth.

With the third-quarter report, the economy is closing in on the 3% level some economists had expected to see for the second half of the year. Over the first half of the year, growth had averaged just 1.1%.

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“While the economy may not be ready to take off, [the third-quarter] GDP suggests the economic expansion is not at risk of ending,” David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management, told Reuters.

The growth came even though consumer spending increased by only 2.1% after the second quarter’s very strong 4.3% pace. “It’s encouraging we can get this kind of growth with consumer spending that was basically cut in half in the quarter, and I think we’ll get something similar in Q4,” Ward McCarthy, chief financial economist at Jefferies, told CNBC.

With business investment still sluggish, the third-quarter acceleration largely reflected a buildup of business inventories and a one-time jump in exports due to better soybean shipments that helped to shrink the trade deficit.

U.S. soybean exports surged to a record 1.936 billion bushels during the 2015-16 marketing year that ended on Aug. 31 as poor harvests in key competitors Brazil and Argentina forced importers to buy more U.S. supplies than planned.

Trade contributed 0.83 percentage point to GDP growth after adding a mere 0.18 percentage point in the April-June quarter. “Economists said [the] soybean-driven export growth spurt could reverse in the fourth quarter, but they also noted that exports of capital and consumer goods have been growing strongly in recent months,” Reuters reported.

Businesses accumulated inventories at a $12.6 billion rate in the last quarter, contributing 0.61 percentage point to GDP growth, but business spending on equipment fell 2.7%, the fourth straight quarterly decline.