U.S. economic growth exceeds expectations in Q3, FOMC likely to hike rates in December

The BEA’s advance estimate showed that the U.S. economy expanded at an annualized rate of 3 percent in the September quarter, coming above consensus expectations of 2.5 percent. Consumer spending also exceeded expectations, rising 2.4 percent as compared with the expected 2.1 percent. The gain was driven by spending on durable goods that rose 8.3 percent. Non-durable goods spending grew 2.1 percent, while services spending rose 1.4 percent. The services category was possibly adversely impacted by hurricane activity.

Business investment also had a decent quarter, recording a rise of 3.9 percent, even as non-residential structures dropped 5.2 percent. The rise was driven by equipment spending, which grew 8.6 percent, while spending on intellectual property products grew 4.3 percent. Residential construction also dropped 6 percent. Both residential and non-residential structures categories were affected by disruptions related to Hurricanes Harvey and Irma.

Net exports contributed 0.4 percentage points to the real GDP growth. Exports grew 2.3 percent while imports dropped 0.8 percent. Imports might have been delayed by the hurricanes. Inventory investment also made a considerable contribution to growth, contributing 0.7 percentage points to the headline figure.

The U.S. economy has made considerable progress in the third quarter despite the two major hurricanes making landfall. Outside of the areas directly affected by the hurricanes, there are a few signs of weakness.

With rebuilding expected to boost economic growth in the December quarter, there is a possibility that yet another quarter of 3 percent growth is in store, noted TD Economics. This is above the economy’s potential rate and is in line with ongoing declines in the jobless rate, which at 4.2 percent is already below its estimated long-run level.

“The FOMC may hold on raising rates at its meeting next week, but with such broad-based economic strength, a hike in December is near certain at this point”, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 103.37. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest