US economy continues upward trend, contrary to many voters' perceptions

New GDP numbers show the economy growing at 3.5 percent, which is better than consensus forecasts. It's the last portrait of the economy before Election Day.

Nathan Gray/Anderson Independent Mail/AP
Elaine Timms, an employee of Phoenix of Anderson, sorts fabrics inside the company's warehouse in Williamston, S.C., Sept. 17, 2014. The Commerce Department released third-quarter gross domestic product on Thursday, Oct. 30, 2014, showing the US economy grew at a steady pace of 3.5 percent.

The US economy grew at steady pace of 3.5 percent in the third quarter, a sign of progress against a backdrop of concerns about slow wage growth and difficulties for the wider global economy.

The growth estimate, released by the Commerce Department Thursday, is also significant because it’s the final overview of the economy to come out before Americans cast ballots in elections next Tuesday.

In polls, likely voters continue to rank the economy and jobs above other priorities affecting their vote – as they have done for the past six years. In a new Christian Science Monitor/TIPP poll, 81 percent of registered voters say the economy is a "high priority" as they weigh the candidates.

Fairly or unfairly, many voters take a dim view of President Obama’s handling of economic policy – a factor that weighs on Democrats’ hopes of retaining control of the US Senate.

The job market is still not back to normal some six years into Mr. Obama’s presidency. But unemployment has been falling steadily. And the new gross domestic product (GDP) numbers come along with signs of improving sentiment among workers and consumers.

“The expansion is becoming more and more self-sustaining, and we forecast that real GDP will grow roughly 3 percent … in both 2015 and 2016,” writes global economist Jay Bryson of Wells Fargo’s economics team.

“If realized, that would be the strongest two-year period of real GDP growth for the U.S. economy since the middle of the 2001-07 economic expansion,” says Mr Bryson.

The 3.5 percent annualized rate of growth, which was better than consensus forecasts by economists of roughly 3 percent, is a preliminary estimate that’s likely to be revised a bit in the next couple of months.

Some highlights on the economy (from the GDP report and elsewhere) as the election comes into focus:

  • The solid third-quarter comes after a roller-coaster start for the year, with GDP contracting at a 2.1 percent pace in the first quarter and bouncing back at 4.6 percent in the second.
  • Consumer spending, exports, and business investment all contributed to third-quarter growth. Bryson says that, with exports tending to be volatile from quarter to quarter, foreign trade could be a modest drag on GDP in the fourth quarter.
  • Conditions may be in place for better income growth, as the job market continues to firm up. And falling gas prices act as the equivalent of a tax cut, giving consumers more disposable income. The down side of this equation: Gas prices have fallen partly because of a weaker outlook for the global economy, which in turn poses some risk growth in the US.
  • Unemployment has fallen to 5.9 percent of the labor force. Economists caution that this number doesn’t capture the extent to which the job market still needs to recover: The labor force would be somewhat larger, with more people looking for work, if the job market were healthier.

The president acknowledges the need for more job growth. But as the vote nears, he’s also been emphasizing the signs of progress.

Unsurprisingly, the commentary from White House economists Thursday opened more like an election manifesto than as a focused analysis of the new data. Jason Furman, who heads Obama’s Council of Economic Advisers, described growth as “strong,” and “consistent with a broad range of other indicators showing improvement in the labor market, rising consumer sentiment, increasing domestic energy security, and continued low health cost growth.”

Mr. Furman, citing Obama agenda items, said “more must still be done to boost growth both in the United States and around the world by investing in infrastructure, manufacturing, and innovation; and to ensure that workers are feeling the benefits of that growth, by pushing to raise the minimum wage and supporting equal pay” for women.

Republicans offer a contrasting set of growth proposals, including efforts to reduce regulations, tax reform that encourages global companies to locate operations in the US, and a push for new free-trade agreements.  

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