The US economy got good news on Friday morning.
According to the Commerce Department, gross domestic product — which measures the value of all economic output — grew by 2.9% in the third quarter.
That was the fastest pace in two years, up from a sluggish rate of 1.4% in the second quarter, and better than the consensus of economists expected.
But there’s a major reason why this may not be as great as it looks: soybeans.
The report showed that the boost to growth came from inventories — encouraging after it acted as a drag for five quarters — and in trade.
Neil Dutta, the head of US economics at Renaissance Macro, said in a note that these added 0.61 percentage points and 0.83 percentage points respectively. That implies that GDP excluding trade and inventories rose at a 1.4% seasonally adjusted annual rate, he said.
A closer look at the trade boost to GDP shows that soybean exports were the big driver.
Earlier in October, the international trade report foretold that trade would make a big contribution to growth.
Here’s what Jeremy Lawson, chief economist at Standard Life Investments, said about why soybean exports were a huge contribution to growth, in a note:
“In a normal year, US soybean exports increase strongly in the winter months after the fall harvest. The Census Bureau then smooths these spikes out through its seasonal adjustment process. This summer, however, soybean exports from South America (Argentina and Brazil are by far the world’s largest exporters) have been very weak thanks to a poor harvest, leaving US producers to fill the gap.
The application of the normal seasonal factors to the unusually large increase in soybean exports has meant that seasonally adjusted food, feed and beverage exports are up 121% in three-month-on-three-month (3m/3m) annualized terms.”
And so, there’s an important seasonal distortion to the numbers — albeit a boost — that cannot be overlooked.
Soybean prices have been rising because of this demand. On Thursday, the most active soybean futures contract on the Chicago Board Of Trade rose to a two-month high.
The chart below, which Pantheon Macroeconomics’ Ian Shepherdson circulated after the August advance trade report, shows a surge in food exports, especially of soybeans.
Seasonals aside, Dutta said the trade boost to economic growth could be short-lived if the US dollar continues to rise, making American exports more expensive for foreign buyers.
And like the data release emphasised, this is an advance estimate based on incomplete data. In November and December, the Commerce Department will release revised numbers.
And then next year, there will be an annual revision for all the GDP prints of 2016.
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