Financial and Economic Brief - October 31, 2017by © Liberty Publishing, Inc.
GDP Rose 3%
The U.S. economy “unexpectedly maintained a brisk pace of growth” in the third quarter. Investment in inventories and a smaller trade deficit counterbalanced the hurricane-related slowdown in consumer spending and a weakening in construction. According to the Commerce Department, gross domestic product increased at a 3% annual rate in the July-September period after expanding at a 3.1% pace in the second quarter. Economists had forecast the economy growing at a 2.5% pace in the third quarter. The U.S. central bank is expected to increase interest rates for a third time this year in December 2017.
Oil Prices Still Sub $60/Barrel
The “key psychological threshold” of $60 a barrel has not been broken in awhile. Why? Oil inventories are declining, but storage remains high. Also, fears that OPEC could overflow the market in 2018. Furthermore, money managers built up “bullish” bets in the oil futures market. But, when investors get too far ahead of the fundamentals, the rally ends up coming to a dead end. Another important factor is U.S. shale which will trap oil prices within a relatively narrow band of $40 and $60 per barrel. “It’s going to be difficult to really break $60 a barrel, without some major new event,” Olivier Jakob at Petromatrix, said. “And if we do break $60, it’s going to be even more difficult to sustain it.”
Consumer Spending Increases
The Commerce Department reported that consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1% in September. The increase was the largest since August 2009. Moreover, consumer spending rose by an unrevised 0.1% in August. Prices of U.S. Treasuries were higher in early morning trading while the dollar was weaker against a basket of currencies. U.S. stock index futures were mixed. The balance in consumption was offset by a rise in inventory investment, business spending on equipment and a drop in imports, which left the economy growing at a 3% rate in Q3.