The Department of Commerce said that US GDP grew at 2.1% in the third quarter, rather than the 1.5% reported last month. It said businesses had not reduced inventories as quickly as it had initially predicted.
Nancy Curtin, chief investment officer at Close Brothers Asset Management said that while the rise would not ‘set investors world alight’, it did instil confidence in the US’s economic momentum: “Jobs figures for October smashed expectations, while consumer sentiment remains strongly upbeat,” she said. “Retail figures have been a little more mixed, but this is more a reflection of a new smarter and cost conscious consumer than any fundamental economic issues. Inventory de-stocking weighed on third quarter growth, but as companies rebuild their inventories, this actually bodes well for the figures in the final quarter.”
Curtin said that Yellen ‘couldn’t have been much more clear’ that she expects to start rate normalisation in December, but added that she didn’t expect this to startle markets.
Russ Mould, investment director at AJ Bell, said that while the faster growth gave ammunition to the hawks on the Federal Open Markets Committee, a December rate was not ‘an open-and-shut case’. He added: “Lagging indicators – GDP and employment – are strong, while concurrent indicators such as industrial production and retail sales are mixed and leading ones such as sentiment surveys and PMI reports look soft on forward-looking signals like orders and pricing.”
However, he added that dollar strength suggested markets were gearing up for a rate increase and this may be welcomed by markets after months of deliberations from the Fed.
Enzo Puntillo, head of fixed income at GAM in Zurich, said that the US economy still does not look particularly strong: “Structurally, lower demographic growth and lower productivity are the drivers behind the absolute low growth level. Cyclically, data suggests that weak oil sector investments, fading global economic growth and a strong US dollar are creating some headwinds for the US economy.
However, he added: “The QE and zero interest rate policy have done their job in the US, and there is nothing they can add at this point. I think the Fed should really start to move away from giving the US economy `painkillers’ to something more energizing…The first interest rate increase in December is becoming very likely.”
