U.S. Economy Grew 2.9% in 3rd Quarter, Picking Up the Pace
October 28, 2016, 2:30pm


The American economy moved into a higher gear last quarter, expanding at an annual rate of 2.9 percent and riding continued strength among consumers and a better performance in global trade.

The Commerce Department’s report on the nation’s gross domestic product, released Friday, is the next-to-last snapshot of the overall economy before voters go to the polls on Nov. 8. Americans will also get to gauge the economic fortunes of the nation from the monthly unemployment figures to be released on Nov. 4.

While the pace of economic growth in the third quarter fell well short of previous achievements, the latest data represented a significant improvement from the first half of 2016 and the best quarterly advance in two years. Economists also said the gains were probably strong enough to reassure Federal Reserve policy makers that it was safe to raise the benchmark interest rate when they meet in December.

“This is a good, solid number,” said Gus Faucher, deputy chief economist at PNC Financial Services in Pittsburgh. “The economy is growing at a decent clip. Consumer spending will continue to lead growth, and the fundamentals there remain positive.”

For all the quarterly blips, the ups and downs on Wall Street and the back and forth between political parties, the American economy remains more or less on the same trajectory since the recovery began more than seven years ago: modest but consistent growth.

The bigger picture has remained remarkably steady, with yearly growth in the range of 1.75 percent to 2.75 percent. From 2010 to 2015, the economy grew at an average annual rate of 2.6 percent.

Economists like Michael Gapen of Barclays expect gross domestic product to expand 2.5 percent in the current fourth quarter, and then advance about 2 percent in 2017.

“The consumer is fine, and there is evidence that the industrial side of the economy is stabilizing and the big drags from inventories and weak investment are abating,” said Mr. Gapen. “Manufacturing, trade and energy may no longer be significant headwinds, as they have been over the last year.”

The 1.1 percent growth rate from January to June this year was the slowest first half since 2011, and it was well below what economists expected when 2016 began.

Much of that weakness was a result of an inventory buildup on store shelves and in warehouses that has only slowly been worked off. The lingering effects on business investment from the collapse in the price of oil and other commodities have also dragged down the economy.

Many experts initially forecast another subdued performance in the third quarter, but estimates crept higher this week after a report on Wednesday showed better-than-expected exports and lower imports in September.

Unlike some recent periods, which showed uneven gains, the growth in the third quarter was broad-based, with most industries advancing. For the second quarter in a row, trade was a net positive, adding nearly a full point to growth on a big jump in exports.

Consumer spending slowed from its barnburner pace earlier in the second quarter, but at 2.1 percent it was healthy enough to suggest that shoppers remained optimistic. Other sources of slack, like a drop in spending on residential construction, were more than made up by businesses as they restocked shelves and began investing again in the energy industry and elsewhere.

The comparatively good economic news was welcomed by Hillary Clinton’s presidential campaign, which has repeatedly made the case that the economy is in better shape than Donald Trump and other Republicans claim.

“Today’s G.D.P. release shows economic growth at its fastest pace in two years,” Jacob Leibenluft, a senior policy adviser to Mrs. Clinton, said in a statement. “It’s clear we’ve made real progress coming back from the crisis.”

In a separate report Friday, the University of Michigan revised its final reading on consumer sentiment in October down slightly to 87.2. Oxford Economics attributed the decline to the fierce rhetoric that has characterized the final days of the presidential race.

“Consumers often feel less optimistic in election years, and 2016 is no exception,” said Gregory Daco, head of United States macroeconomics at Oxford. “We anticipate that a reasonably solid macroeconomic backdrop will underpin a rebound in sentiment once the election has concluded.”

The recent rebound in oil prices could also spur more economic activity among drillers and other energy producers in the months ahead, even if slightly higher gas prices won’t please consumers.

Underscoring just how quirky economic data can be on a quarter-to-quarter basis, the Commerce Department noted that a big chunk of the export gains came from a surge in soybean exports that was unlikely to repeat itself in future quarters. Friday’s release was the first of three estimates of quarterly growth that could be revised upward or downward by government number-crunchers, with the next batch of data on G.D.P. expected on Nov. 29.

Since joblessness hit a peak of 10 percent in 2009, the unemployment rate has been cut in half. Still, growth in the current recovery has fallen well short of previous rebounds in the 1980s and ’90s.

The slack in the economy has contributed to paltry wage gains for most Americans until recently. In addition, plenty of workers are stuck on the sidelines or reluctantly working in part-time jobs because full-time positions are not available.

But now there are signs that wages are finally beginning to increase, as the steady drop in unemployment forces businesses to compete for new hires. With that in mind, the Federal Reserve is considered likely to raise interest rates when it meets in December; it would be the first increase in a year.

Policy makers at the Fed will gather next week, but most experts say there is little chance the central bank will act to tighten monetary policy so close to the presidential election.

While growth could rise above the 2 to 3 percent range for a quarter or two in the next year, it is unlikely to rise to the level last seen in the late 1990s, when economic activity was in the 3 to 4 percent range.

“The labor force is growing more slowly than it was in the 1990s, and productivity growth is slower,” Mr. Faucher of PNC Financial said. “There are things we can do — like improve the tax structure, implement regulatory reform and spend more on infrastructure — but those are longer-term projects.”