It only took six years, but we’re finally starting to see the U.S. economy kick into gear.
The growth was propelled by a big rise in business investment, up nearly 9 percent, personal consumption up 3.2 percent and exports up 4.5 percent. Government spending, which is a negative for the economy, grew by 4.4 percent thanks to a big rise in military spending, but domestic spending is still restrained.
The news was so good that even the threat that the Federal Reserve will now have an excuse to raise interest rates couldn’t deter the bulls on Wall Street.
What’s generating the growth?
A huge factor has been the fall in energy costs. As the oil price fell from $105 a barrel this summer to close to $70 by September, the cost of oil imports tumbled. Imports fell by nearly 2 percent, and this alone added almost 0.2 percentage points to gross domestic product growth.
Even that badly understates the economic windfall from cheap energy. Production costs fall when energy costs do, so the supply of American-produced non-oil and non-gas products, such as manufactured goods, rise when gas is cheap. With prices lower now in this quarter, the good news story rolls on. Thank you, fracking.
Businesses are clearly feeling less fearful about investing, and some of the negative, wet-blanket effect of Obama’s anti-business, anti-shareholder agenda has dissipated as the Republican Congress repels his worst ideas—cap and trade, minimum wage hikes, new taxes on the energy industry and massive new spending initiatives out of Washington.