The U.S. economy grew by almost 3 percent in the third quarter of the fiscal year, the fastest in two years. Due in part to a spike in soybean sales, gross domestic product expanded by 2.9 percent, which is a substantial increase from the second quarter that boasted a marginal growth of 1.4 percent. The 2.9 percent growth increase surpassed the predictions of leading economists, who anticipated that the GDP would increase up to 2.5 percent.
This recent GDP growth has distilled the fear that the U.S. economy would reach an unnecessary stalemate, especially since the average increase over the first half of the year was 1.1 percent.
MarketWatch cites many factors that may have contributed to the economic growth. Analysts have indicated that consumers have increased spending by up to 2.1 percent more than in previous years. U.S. exports also surged in the third quarter, shrinking the current trade deficit and lifting the GDP.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, the GDP growth can be partially attributed to the export of soybeans, which accounts for approximately one-third of the rise. The rise in soybean sales occurred as a result of poor harvest in parts of South America, which required that the United States export soybeans.
Following a damaging $9.5 billion decline in the previous quarter, inventory value spiked up to $12.6 billion in the third quarter, which accounted for a large part of the GDP growth. Businesses and other industries have invested more money into office equipment and workspaces this year, resulting in an increase of 5.4 percent.
“Bond yields have been moving higher in a global selloff this week. The 10-year yield initially rose to 1.87 percent after the GDP report, but then was trading little changed at 1.85 percent.” An article from CNBC explains, “The global jump in yield comes as central banks have been signaling less willingness to add to easing programs, and the Federal Reserve prepares to hike interest rates. At the same time, inflation expectations have been rising”.
These increases demonstrate the upward trend that is beginning to define the U.S. economy. The rising GDP growth may point to further economic progress, which will be a key factor for the Federal Reserve to consider in its last two Federal Open Market Committee meetings of the year.
Although it may seem like good news in the long run, economists and market analysts warn that since the substantial GDP rise this quarter mainly resulted from favorable increases in exports and inventory value, it may be short-lived. The circumstances that led to GDP growth this quarter may either begin to fluctuate or dwindle completely as the months continue.
A steady pace of hiring occupied the role of the most lasting factor that contributed to the GDP growth.
With the employment rate on the rise, the Federal Reserve will be encouraged to raise the lending rate in the United States. Despite the substantial GDP growth, the Fed is unlikely to move rates in its November meeting due to the uncertainty of the election. The employment rate also highlights the notion that inflation will not increase over 2 percent, which has been the Fed’s target. If the Fed chooses to raise rates in December, it will only be the second time in a decade.
Higher rates will not have a direct effect on the economy immediately. This step cannot be taken lightly because the Fed uses this rate in order to put a cap on inflation. At this point, the goal of the Fed is to keep inflation below 2 percent. Since the Fed controls this rate, it can also control the amount of money that is available for the purchase of public goods. By increasing the fund rates, the money becomes more difficult to obtain.
The economic upturn may have elevated Hillary Clinton in the upcoming presidential election. Clinton has established herself as the prime successor to President Barack Obama’s economic triumph. The Clinton Administration is propping itself up by its economic goals, which include the pursuit of a rising GDP during her term as president, provided that she gets elected.
Economists have predicted an additional 2.4 percent rise in the fourth quarter from the months of October to December.