What's going on?
The US economy grew faster than expected in the third quarter, according to data released on Friday, although a closer look into the numbers has left a few economists scratching their heads…
What does this mean?
America’s economy grew at an annualized rate of 3% in the third quarter (compared to economists expecting 2.5%) as consumers spent more and businesses ramped up the scale of their investments. The better-than-expected figure also signaled that the economic impact of the back-to-back hurricanes wasn’t as bad as some had predicted (this has also been evidenced in many US companies’ recently reported earnings).
That said, this is just a first estimate of how fast the economy grew from July to September, and it could be revised up or down as more data comes in.
Why should I care?
The bigger picture: Some say that the growth figures are overstated…
Around one third of the estimated economic growth was chalked up to companies’ inventory spending – a.k.a. spending on goods that they’ll eventually sell to consumers but haven’t sold yet, and are stored in inventory in the meantime. Inventory spending was especially high this last quarter, and some economists are arguing that Friday’s growth figures are overstating the strength of the US economy, as there’s no guarantee that American consumers will actually buy out these growing inventories.
For markets: The dollar reached its highest level in three months against major currencies following the news.
Investors typically like to invest in economies that are growing at a healthy pace, and thus need to buy those countries’ currencies to pay for investments there. However, the dollar is still worth less than it used to be a year or two ago relative to some currencies including the euro and the yen – which means that some imports from those regions are now more expensive for Americans than they used to be, while companies can export their goods abroad more cheaply.