Third-quarter gross domestic product growth of 2.9% surpassed estimates and was the fifth highest annualized rate of growth in the past 19 quarters and the biggest gain in two years.
But before uncorking the champagne, let's take a look at the sources of the so-called rebound, as there is little to suggest that any sustainable uptick in growth is at hand.
Table Contributions to GDP Growth
The single most important factor to sustained employment, and real wage growth is fixed investment, which was actually a drag on real GDP growth in the third quarter of -.09% of the total growth of 2.9%. Nothing has happened to improve sentiment among private-sector capital allocators to start investing more optimistically in the growth of their own businesses.
The focus continues on financial engineering -- mergers and acquisitions and share repurchases -- tactics that contribute little to growth.
So, what were the positives supporting the upside surprise?
Personal consumption -- an effect of GDP growth rather than the cause, notwithstanding the popular myth suggesting the opposite -- added 1.47%, half the entire growth. That isn't a strong number by historical standards, never mind recovery standards and only ranks 17th of the past 19 quarters.
One might point out the potential for upside from this source of production, which returns us to our myth. Consumers can't increase real expenditures on a sustainable basis in the absence of jobs and real wage growth.
Politicians and pundits love to cite the historic string of consecutive months with positive jobs growth. But jobs growth has been historically anemic as economic recoveries go, reflected more clearly when jobs numbers are cast in terms of the percentage growth of total employed.
By our calculation, the U.S. economy is still about 4 million jobs shy of full employment, and household income remains stagnant at levels observed a decade ago.
Private inventory growth had its fourth best quarter since the start of 2012, adding 0.61% out of the total 2.9%. This line item is lumpy and a notoriously unreliable source of growth.
Similarly, net exports added 0.83% to the third quarter. This is indeed a surprise as the dollar has been on a tear, up 6% from May lows, versus a basket of other currencies.
Support from increases in net exports while the dollar is strengthening isn't only unlikely, but the opposite should be expected, with the dollar being a drag going forward.
Finally, on a smaller scale, federal spending added 0.17% to the GDP growth total, while local and state spending became a smaller drag. These too are bumpy line items but in no way a sign of sustainable, quality production growth.
The Federal Reserve probably has enough cover here to justify another small hike in December. But make no mistake, an increase would purely be about the Fed positioning itself to do something in the realm of monetary stimulus when the inevitable recession finally hits.
It has nothing to do with the traditional reasons for tightening such as signs of above-average inflation, above-average GDP growth or the ancillary variable, a tight labor market. These factors aren't present.