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December 22, 2016 Blog 2 min read

U.S. economic growth revised upward to 3.5 percent for Q3; jobless claims rise

With the latest revision for Q3 now in our hands, a few things are clear: the economy found its stride in the third quarter, and that pace of growth is going to be difficult to match in Q4.

Today’s report reaffirms the upward momentum of the U.S. economy during the third quarter as the economy grew at a brisk 3.5 percent annualized pace, revised slightly upward from last month’s estimate of 3.2 percent. Economists expected little change to the prior estimate, making the 0.3 percent improvement a modestly positive surprise.

Growth in personal consumption nudged higher to 3.0 percent, as increasingly optimistic consumers supported by increasing wage gains continued to spend.

The long trend of stagnant business investment finally broke, as gross private domestic investment expanded by 3.0 percent. While not a blockbuster result, it was the strongest gain since the first quarter of 2015 and the first positive contribution in a year. Of particular note was the 12.0 percent surge in business investment in structures – the strongest advance since early 2014. In addition, business optimism has surged in the aftermath of the presidential election, suggesting that continued improvement in business investment could finally provide more fuel to top-line economic growth in 2017.

Weekly jobless claims surged unexpectedly to 275,000 for the week ended December 17 – an increase of 21,000 over the revised 254,000 for the preceding week. The 4-week average also edged upward to 263,750 – 6,000 more than the prior week. Although the increase lifted claims to their highest point since June, they remain in a range that still points to favorable labor market conditions, extending the streak of claims below 300,000 to 94 consecutive weeks.

Arguably, there’s little in either report to be a real market mover. Both reinforce the broadly held view that the economy gathered momentum after a lackluster first half to the year and that the jobs market remains a relative bright spot.

The challenge for the economy will be to sustain that momentum through the end of the year. Fourth quarter GDP is expected to be solid, but slower on the heels of markedly cooler consumer spending, based on disappointing November retail sales.

However, strengthening labor markets, rising wages, the recent surge in equity markets, and rising consumer sentiment in the crucial holiday shopping season should all act as tailwinds to growth heading into 2017.

© Jim Baird for PMFA Market Perspectives, 2016.