US Economic Growth Hits 2-Year High

The World’s largest economy has managed to expand at its fastest rate. This fact will fuel speculation that the US Federal Reserve will increase the interest rate before the end of the year in a bid to normalize interest rates (towards historic levels) and give themselves room to maneuver when the next economic downturn strikes.

According to the US Commerce Department, the US economy grew at a rate of 2.9% in the third quarter (on an annualized basis). The figure is based on a partial data set and will be subject to two revisions as more comprehensive data comes in. The performance comes in above analysts’ predictions of a 2.5% growth figure. The performance is the best seen since Q3 2014 (which came in at 5%) and more than doubles the growth projection seen in Q2 which came in at 1.4%.

The dominant term in the US economy is domestic consumption which accounts for about 70% of all US output. Therefore a key indicator is consumer spending. The Q3 consumer spending showed a marked slow-down over the Q2 level, coming in at an annualized rate of 2.1%, slightly less than half of the 4.3% growth seen in that quarter. The relative weakness was offset by increased spending by businesses which were re-stocking inventories that had been depleted in Q2.

These figures will be the final set of data prior to next week’s US presidential election which gives the electorate an essentially binary choice between traditional Democratic candidate, Hillary Clinton, and maverick Republican, Donald Trump. In usual times, the economy would be the dominant issue in an election, but the 2016 campaign has been anything but usual. Polls (for what they are worth) give Mrs Clinton a narrow lead over Mr Trump, but the same polls failed to predict a 52-48% decision to leave the EU in the UK referendum, so most people will just wait and see.