The latest Gross Domestic Product (GDP) figures indicate that the US economy expanded an annualized 3 percent on quarter in the third quarter of 2017, only slightly below 3.1 percent in the previous three months, which was the fastest pace since Q1 2015. The GDP numbers beat expectations of 2.5 percent, despite the disruptions caused by hurricanes Harvey and Irma. Inventories rose sharply and trade made the biggest contribution to growth in nearly four years amid a fall in imports. The economy is expected to maintain GDP growth in the fourth quarter of 2017 into 2018.
Key GDP indicators show that final sales to domestic purchasers for the third quarter were at 1.8 percent. This number provides more informative one the underlying strength of the U.S. economy’s expansion that is slow but in line with the entire post Great Recession period. Overall the report is consistent with an economy that has steadily improved since mid-2009, with the pace of improvement too-slow but steady.
One important measure of inflation (the “core” price deflator for personal consumption expenditures (PCE Price Deflator), which subtracts out volatile food and energy prices) continued to actively decelerate; growing at 1.5 percent over the past 12 months compared to last quarter’s reading of 1.2 percent.
Further, the rate of productivity growth grew at less than a 1.0 percent annual rate in the third quarter, while value-added in the non-farm business sector grew at a 3.8 percent rate. This means that productivity is likely to be over 2.0 percent for the quarter, a big jump from the 0.7 percent rate of the last five years.
According to the Economic Policy Institute (EPI), this is well below the Federal Reserve’s preferred 2 percent target. This signals strongly that while the economy continues to slowly improve, there is no danger of too-rapid growth leading to overheating and policymakers should let the expansion continue without trying to rein in its pace. The Center for Economic Policy Research (CEPR) concurs that there continues to be no evidence of inflationary pressures. This means the rate of inflation remains well below the Fed’s target, with no evidence of acceleration.