The Debt Ceiling Battle Pays Off

Good news on the economy this morning:

The U.S. economy expanded at a much faster pace in the third quarter, growing 2.5% as consumers spent more on big-ticket items such as autos and businesses investment surged. Growth almost doubled the 1.3% rate of the second quarter. The U.S. was forecast to expand by 2.8% in the third quarter, according to a MarketWatch survey of economists. Consumer spending climbed 2.4%, the highest rate since the end of 2010, and business investment shot up 16.3%. Inventories, which subtract from gross domestic product, rose 1.9%. Excluding inventories, final sales of goods and services increased 3.6%. Inflation, as measured by the price index for gross domestic purchases, fell to 2.0% in the third quarter from 3.3% in the second quarter. Excluding food and energy, the index declined to 1.8% from 2.7%.

Particularly good news here is the spike in business investment. And note the timing: it seems to have been just as the debt ceiling battle was heating up, and then ending in a Republican semi-victory, that businesses decided to invest. It could be a coincidence, but my tentative interpretation would be that businesses saw the government finally getting its act together on long-term debt, and swung into investment mode.

Comments

[nato]

We also had fewer devastating earthquakes and tsunamis in Japan.

[Nathan Smith]

And the European debt default was accelerating, and there was severe weather in the northeast, which would both point the other way. It's the investment number I'm focused on. By the way, the fact that the stock market went down after the debt deal doesn't support my theory at all. So it's mixed. But this is a very notable favorable data point.

[nato]

I think the real effect will come when the supercommittee comes out with a plan, and if something substantial gets passed.

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The U.S. economy expanded at a much faster pace in the third quarter.

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