Gross domestic product increased at a 2.9% inflation-adjusted annual rate in the third quarter of 2016. The better than forecast numbers have eased investor fears of dwindling economic expansion. It was the strongest reading in two years, and followed three quarters of below-2% growth. Some of the forces driving the increase included a buildup of business inventories and a large jump in soybean exports. The underlying data still showed slowing consumer spending, low business investment and a weak housing sector.
Increases in private inventories, a measure which dragged on growth over the past year, contributed 0.61 percentage point to the GDP number. Exports increased 10%, the fastest gain in three years, outweighing a relatively minor import increase. Shipments of agricultural products, especially soybean supported the gains. This increase could be a sign that pressure from the strong dollar, which hurt exports over the past two years, is starting to rescind. Consumer spending on the other hand advanced 2.1%, half the rate of the prior quarter.
Although the data was positive, it suggests the economy will not top 2015’s 2.6% growth rate. The U.S economy has failed to grow over a 3% pace in any year since 2005. The most recent GDP number, coupled with increasing employment, makes a Fed hike more likely this year.