U.S. Q3 economic growth registers best performance in 2 years, cements case for Dec Fed rate hike

Economic growth in the United States registered its best performance in two years, during the third quarter of 2016, further cementing hopes for a Fed fund rate hike in the December 13-14 monetary policy meeting. A strong consumer spending, coupled with a surge in soybean exports helped bolster the cause.

In the second estimate of Q3 GDP, US growth was revised three-tenths higher to 3.2 percent q/q on a seasonally adjusted annual rate basis, data released by the Commerce Department showed Tuesday, helped by personal consumption expenditure which was estimated to have grown 2.8 percent, from 2.1 percent in the advance estimate.

Further, personal consumption was revised higher across the board, but sizeable durables goods (0.8pp) and services (1.2pp) contribution drove much of the strength in consumption. Net exports were also revised higher to 0.9pp contribution (from 0.8pp in the advance estimate).

In addition, overall fixed investment and inventory accumulation were revised lower, but the detailed breakdown was a mixed bag. Within fixed investment, structures were revised significantly higher to 10.1 percent, from 5.4 percent and residential recorded a smaller decline of -4.4 percent, from -6.2 percent than initially estimated.

Both equipment and intellectual properties were revised lower to -4.8 percent and 1.0 percent, from -2.7 percent and 4.0 percent respectively. However, inventories are now estimated to have contributed 0.5pp to growth rather than the 0.6pp reported in the advance estimate. Government consumption rose a modest 0.2 percent as state and local spending was revised to show a larger decline of 1.1 percent, compared to a 0.7 percent drop in the advanced estimate.

The Atlanta Fed is currently forecasting GDP rising at a 3.6 percent rate in the fourth quarter, supporting market expectations that the Federal Reserve will raise interest rates next month. The third-quarter revision showed a much more favorable growth profile for the economy, Reuters reported.

The upbeat data, along with a recovering labor market and rising rates of inflation, all create a favorable environment for the Fed to raise its benchmark interest rate, after having done so at the last December for the first time in nearly a decade.

Meanwhile, at 5:00GMT, the FxWirePro's Hourly Dollar Strength Index remained highly bearish at -115.38 (below -75 indicates bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex