Soybean exports power
U.S. economy to best performance in two years
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[October 29, 2016]
By Lucia Mutikani
WASHINGTON (Reuters) - The U.S. economy
grew at its fastest pace in two years in the third quarter as a surge in
soybean exports and a rebound in inventory investment offset a slowdown
in consumer spending.
Gross domestic product increased at a 2.9 percent annual rate after
rising at a 1.4 percent pace in the second quarter, the Commerce
Department said on Friday.
That growth rate was the strongest since the third quarter of 2014 and
beat economists' expectations for a 2.5 percent expansion pace. Business
investment improved last quarter, though spending on equipment remained
weak.
But with exports and inventories accounting for almost half of the
increase in output, economists warned the growth spurt would likely be
temporary. Still, the data helped dispel any lingering fears the economy
was at risk of stalling. Over the first half of the year, growth had
averaged just 1.1 percent.
"While the economy may not be ready to take off, today's GDP suggests
the economic expansion is not at risk of ending," said David Donabedian,
the chief investment officer of Atlantic Trust Private Wealth Management
in Baltimore.
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Coming ahead of a Federal Reserve policy meeting next week, economists
said the data was unlikely to change views that the U.S. central bank
would wait until December, after the Nov. 8 presidential election, to
raise interest rates.
The labor market is near full employment and price pressures have been
steadily increasing, raising confidence that inflation will gradually
move towards the Fed's 2.0 percent target.
Less than two weeks before the election, the GDP report was seen as
bolstering Democratic presidential nominee Hillary Clinton, who has
positioned herself as the best candidate to continue the more than six
years of growth under President Barack Obama.
"This is good news for the Clinton campaign, which has tied itself
closely to the Obama administration's record on the economy," said
Robert Murphy, an economics professor at Boston College.
Clinton's campaign team welcomed the growth pick-up and warned that
policies proposed by Republican candidate Donald Trump would "would take
us backwards." Trump's campaign team described the growth numbers as
"dismal" and said they underscored the need for change.
U.S. financial markets were initially little changed after the
publication of the mixed data, but U.S. stocks ended lower after the
Federal Bureau of Investigation said it would review additional emails
that have surfaced related to Clinton's use of a private email server to
determine whether they contain classified information. [.N]
U.S. Treasury yields also ended slightly lower and the dollar fell
against euro and the yen.
CONSUMER SPENDING SLOWS
Consumer spending, which accounts for more than two-thirds of U.S.
economic activity, supported the economy in the third quarter by
increasing at a 2.1 percent rate, but down from the second quarter's
robust 4.3 percent pace.
With a tightening labor market generating steady increases in wages,
spending could accelerate in the fourth quarter.
Data on Friday from the Labor Department showed worker compensation rose
0.6 percent in the third quarter after a similar gain in the second
quarter, leaving the year-on-year gain at 2.3 percent. A third report,
however, showed consumer sentiment fell in October.
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![](../images/102916pics/busine83.jpg)
A truck is loaded with corn next to a pile of soybeans at Matawan
Grain & Feed elevator near New Richland, Minnesota, U.S. on October
14, 2015. REUTERS/Karl Plume/File Photo
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"Car sales have plateaued and election uncertainty may have caused some
consumers to pull back," said Curt Long, chief economist at the National
Association of Federal Credit Unions in Arlington, Virginia. "But given the
strength of the labor market, the economy should continue along its present path
of slow-but-steady growth."
A surge in soybean exports after a poor soy harvest in Argentina and Brazil
helped to shrink the U.S. trade deficit in the third quarter, giving a lift to
growth.
U.S. soybean exports surged to a record 1.936 billion bushels during the 2015/16
marketing year that ended on Aug. 31, as harvests in key competitors Brazil and
Argentina were hit by weather problems, forcing importers to buy more U.S.
supplies than planned.
Economists said that soybean-driven export growth spurt could reverse in the
fourth quarter, but they also noted that exports of capital and consumer goods
have been growing strongly in recent months.
Overall exports increased at a 10 percent rate, the biggest rise since the
fourth quarter of 2013. As a result, trade contributed 0.83 percentage point to
GDP growth after adding a mere 0.18 percentage point in the April-June
quarter.Businesses increased spending to restock after running down inventories
in the second quarter. Businesses accumulated inventories at a $12.6 billion
rate in the last quarter, contributing 0.61 percentage point to GDP growth.
Spending on nonresidential structures, which include oil and gas wells,
increased at a 5.4 percent rate, the fastest pace since the second quarter of
2014, after falling in the second quarter.
Business spending on equipment slipped at a 2.7 percent rate, dropping for a
fourth straight quarter. While the pace of decline has been ebbing as oil prices
stabilize and the dollar's rally gradually fades, a strong turnaround is
unlikely in the near-term.
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Heavy machinery maker Caterpillar <CAT.N> this week reported a 49 percent drop
in third-quarter profit from a year ago and lowered its full-year revenue
outlook for the second time this year. Caterpillar said demand for new heavy
machinery had been undercut by an "abundance" of used construction equipment, a
"substantial" number of idle locomotives and a "significant" number of idle
mining trucks.
Investment in residential construction fell for a second straight quarter, while
spending by the government bounced back.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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