GDP Growth, Consumer Confidence Soar

Financial FAQs

The economy grew at the fastest pace in over two years in the third quarter, as consumers, business investment and government increased spending.

Gross domestic product expanded at a 3.2 percent annual rate in the Commerce Department’s second reading, released Tuesday. That’s the strongest pace since the second quarter of 2014. It beat the consensus estimate of a 3.1 percent growth rate among economists surveyed, reports MarketWatch.

Graph: BEA

Consumer spending rose 2.8 percent in the quarter, stronger than the original estimate of 2.1 percent and the strongest pace since 2002. Another big contribution to the economy was business investment in structures like offices and factories, which expanded at 10.1 percent, faster than the initial estimate of a 5.4 percent.

Graph: Econoday

This is huge, needless to say, as corporate profits also soared 6.6 percent in the third quarter, the main reason corporations were able to increase business investment in plants and equipment, a much better performance than the 0.6 percent decline in the second.

And, consumer confidence is soaring because we are so close to full employment, which Friday’s unemployment should confirm. But rising confidence could also be due to the Trump promise of more economic stimulus, as consumer confidence rose sharply following the November 8 election, up 6.3 points to 107.1 for by far the best reading of the cycle, since July 2007. November's current conditions component is up 7.2 points to 130.3 and is led by strong gains in the assessment of business conditions and those saying jobs are plentiful.

 All-in-all, it could mean an even stronger GDP in Q4. But inflation as measured by the GDP Price Index is up just 1.4 percent, still below the Fed’s target inflation goal of 2 percent, as are all of the other inflation indexes, except the CPI.

But the Fed will still probably raise their interest rates in December, if Friday’s unemployment report continues to look strong, which means a 4.9 percent unemployment rate or better and more workers continue to enter the labor force.

Harlan Green © 2016

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