Despite the existence of record low interest rates and the US Fed’s programme of buying US Government debt, the US economy seems to be a long way from requiring intensive care. The US Commerce Department released Q3 “advanced” estimates of US GDP, which is the first of four estimates and subject to three more revisions over the next two months. They show an annualised growth rate of 2.9%, higher than the median estimate of 2.5% and well up on the Q2 2016 figure of 1.4%. The yields of US Treasury notes reacted by swiftly moving up before news of the FBI’s renewed interest in Hillary Clinton sent bond yields lower. 2 year bond yields finished the day 3bps lower at 0.85% and 10 year bonds were 1bp lower at 1.85%.
Net exports, government expenditure at the federal level and an increase in inventories were the main drivers, which concerned some observers due to their transitory nature. Westpac said “a good amount of that growth came from net exports and inventories neither of which can be relied upon in coming quarters.” ANZ took a less-than-hearty approach to the figures especially with regards to the export performance, which the bank put down “to a one-off surge in soybean exports to China.”
US GDP numbers are published in a manner which is different to most other countries; quarterly figures are compunded to give an annualised figure. In countries such as Australia and the UK, an annual figure is calculated by taking the latest number and comparing it with a figure from a year ago. The diagram below shows US GDP once it has been expressed in the normal manner.