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Pickup in Q3 GDP Could Have Bearing on Election Results
October 28, 2016 | The Conference BoardEstimated reading time: 1 minute
The U.S. Bureau of Economic Analysis reported today that real GDP grew at a 2.9% annual rate during the third quarter of 2016. While this is the first quarter in a year where the economy grew faster than a 2.0% annual rate, underlying trends in consumption and investment indicate that the economy is unlikely to exceed a 2.0% trend growth in the near term.
Some of the factors driving higher growth may be temporary. U.S. exports were higher this quarter in part due to larger than expected global demand for U.S. soybeans as a result of flooding in Argentina. Firms also paired down stocks which reduced the need for imports and led to a positive contribution from inventories to growth. Personal consumption grew more slowly despite a low unemployment rate and steady wage growth, which continued into the third quarter, according to today’s Employment Cost Index figures. Non-residential investment, which has been weak for the past two years, finally showed a bit more pep. Sustained oil prices near the $50 level has led previously demoralized producers to begin reactivating abandoned rigs, contributing to a strong rise in investment in structures. Investment in software also continued picking up and helped drive the uptick in non-residential investment.
Still, the weakness in investment in equipment still suggests some wariness on the part of businesses about the current investment climate. Measures of economic policy uncertainty remain high as some firms may be keeping their powder dry until after the elections. Today’s release will likely improve the perception of economic conditions in the U.S. and slightly increase the odds of a Democratic president remaining in the White House. It remains to be seen whether such a result will calm the nerves of hesitant executives. Regardless of the outcome of the election, the environment for investment remains weak due to a combination of higher wages and weak pricing power for firms which have caused profits to decline during the past two years.
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