Soybeans Are Fueling U.S. Economic Growth (But Not for Long)

U.S. agricultural exports have surged the past two months, helping cut the trade deficit and boosting the outlook for short-term economic growth.

One big factor? Soybeans. Bumper harvests at home, crop shortfalls in South America and solid demand—especially from China—have propelled international feed sales.

“Soybean exports will add about 1% to [third-quarter] GDP growth,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.

Mr. Shepherdson is forecasting 4% annualized growth in third-quarter gross domestic product, a broad measure of economic output.

Other economists also have taken note of the shifting trade outlook. (When the Commerce Department calculates GDP, exports add to the headline number and imports subtract. So a smaller deficit implies a stronger reading for the overall economy.)

J.P. Morgan Chase revised its outlook to 3% annualized growth in the third quarter, up from its earlier estimate of 2%, after reports out Wednesday on trade and inventories. Amherst Pierpont Securities boosted its forecast to 3.7% from 3.5%. Macroeconomic Advisers raised its tracking forecast by three-tenths to 3.1%. Barclays inched up to 2.6% from 2.4%.

That’s a big improvement from 1.4% GDP growth in the second quarter and 0.8% in the first. But it does little to alter the longer-term outlook. First, exports are likely to return to trend while depleted crop inventories would be a drag on GDP. Second, the economy has averaged a modest 2.1% growth rate over the course of the expansion, a trajectory that seems unlikely to change despite some noise from quarter to quarter.

“The soybean boost is indeed a one-time thing. It has no implications for trend growth and likely will reverse over the next couple quarters,” Mr. Shepherdson said.

But a big rebound in headline GDP could move markets and color expectations for the Federal Reserve’s next move on interest rates, regardless of the underlying cause, he cautioned.

Fed policy makers project the economy will grow at a 1.8% pace for all of 2016. Even with that modest growth, officials have suggested they’re ready to raise the central bank’s benchmark interest rate later this year if the economy stays on track.

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Corn, Soybean Prices Fall as U.S. Production Forecasts Top Expectations (Sept. 12)

U.S. Trade Deficit Narrowed Sharply in July (Sept. 2)

U.S. Farm Incomes to Hit Lowest Level Since 2009 (Aug. 30)

China’s Newest Bubble: Food for Pigs (June 15)

Heavy Rains Take Toll on Argentina’s Soybean Crop (April 18)

from Real Time Economics http://ift.tt/2dHnXvv