U.S. economy grew at 2.1% in Q3, setting stage for Fed hike

U.S. GDP expanded at 2.1 per cent in the third quarterm the Commerce Department reported Tuesday, putting growth at a rate close to its long-run average.

That's an improvement on the 1.5 per cent it initially estimated, reflecting better business investment growth of 3.4 per cent and less inventory stockpiling than previously estimated.

• Canadian GDP outlook slashed to 1.2% with 3 provinces in recession

Growth in consumer spending was lowered to three per cent and export growth was revised downward to 0.9 per cent in the quarter, an effect of the strong U.S. dollar.

The news comes the same day an advance trade report showed the U.S. trade deficit may have narrowed in October to $58.4 billion from $59.1 billion in September.

However, the Conference Board found consumer confidence in the economy eroded this month with the confidence index falling to 90.4 in November, down from 99.1 in October. The drop was a result of waning confidence in job creation.

The mixed bag of economic signals still seems to set the stage for a hike in interest rates by the U.S. Central Bank.

Underlying strength

Paul Ferley, RBC Economics assistant chief economist, said the U.S. economy is showing a lot of underlying strength.

"The maintenance of this solid pace of domestic spending argues in favour of the Fed starting to withdraw some of the currently highly stimulative monetary conditions," he said in a note to clients.

"Our forecast assumes that at the December 16 [Fed] meeting, the Fed will opt to raise the current fed funds range by 25 basis points to 0.25 per cent to 0.50 per cent."

For 2016, economists anticipate the U.S. economy will grow at a modest 2.5 per cent, a more modest rate because of the slowdown in the rest of the world.

"The headwinds to growth from reduced investment in the energy sector and the rapidly appreciating dollar should dissipate over the next year, allowing economic growth to pick up modestly to around 2.5 per cent," said TD senior economist James Marple.