Economy Grew At Nearly 3% In Third Quarter

The advance estimate for GDP growth in the third quarter came in at 2.9% according to the Bureau of Economic Analysis. This was above the consensus of 2.5%. The main drivers of growth came from the expected increase in inventories and greater exports. Personal consumer expenditures (PCE) actually fell during the quarter, growing at an annualized rate of 2.1% as opposed to 4.5% in the prior quarter.  For those hawks who are pushing for an interest rate hike, this solid economic growth will likely bolster their point of view while doves will point to the slowing PCE growth as a reason to stand pat.

Lara Merling provides further evidence that would support the position of those who feel a rate hike is still unnecessary because we are still a ways away from full employment. She looks at the employment-to-population ratio (EPOP) across our individual states and postulates that, if we were near full employment, the states with low unemployment rates would not see large increases in their EPOP while, correspondingly, states with high unemployment rates should see larger EPOPs because full employment has not been reached. In fact, there seems to be no correlation between EPOPs and state unemployment levels. As she concludes, “While this comparison is far from conclusive, it does not easily fit with a story with the labor market approaching full employment.”