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U.S. economy grows at its strongest pace in two years

-2 0 2 4 6% 2013 2014 2015 2016 2.9 1.4 5.0 -1.2 0.1% Source: U.S. Bureau of Economic Analysis. Seasonally adjusted. @latimesgraphics Gross domestic product After a dismal first half of 2016, the nation’s economic engine grew at the fastest pace since 2014.

The nation’s economic engine revved up this summer after a weak first half of the year, growing at its fastest pace since 2014 and adding new fodder for the presidential campaign and the interest rate-hike deliberations of the Federal Reserve.

The nation’s total economic output, also known as gross domestic product, expanded at a 2.9% annual rate from July through September, the Commerce Department said Friday. The figure beat analyst expectations and was more than twice the lackluster 1.4% annual rate in the second quarter of the year.

Growth now has improved for two straight quarters after the year began with an anemic 0.8% figure in the first quarter.

“The economy has gained some altitude from the dismal pace during the first half, but it is too early to celebrate,” said Sung Won Sohn, an economist at Cal State Channel Islands.

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The latest read on the economy — the first of three estimates of third-quarter growth — could help persuade Fed policymakers to increase a key interest rate later this year.

Fed officials and economists had expected economic growth to improve in the third quarter. Still, the economy is on pace for another sub-par year in the slow recovery from the Great Recession, with growth so far in 2016 running below 2%.

The report is the last on the overall state of the economy before the Nov. 8 presidential election, and the campaigns of Republican Donald Trump and Democrat Hillary Clinton had differing reactions.

Trump deputy policy director Dan Kowalski said the “modest growth” was not good enough to warrant a continuation of Obama administration policies under Clinton.

“Growth hasn’t risen above 3% for a full year in any year of the Obama presidency,” he said. Trump’s economic plan would produce 4% annual growth, Kowalski said.

“Decades of strong economic growth and global leadership have been replaced with low-paying jobs, global chaos and a national debt that has doubled under Obama-Clinton,” Kowalski said.

Clinton senior policy adviser Jacob Leibenluft said the new data showed the economy has “made real progress coming back from the crisis.”

“But Hillary Clinton believes there is still more we need to do to build an economy that works for everyone, not just those at the top,” he said.

Clinton’s economic plan “would create good-paying jobs through investments in infrastructure, innovation and education,” while Trump’s proposals “would risk another recession and cost jobs,” Leibenluft said.

The Commerce Department said a sharp rebound in business investment and exports helped fuel the economy’s third-quarter rebound.

Gross private domestic investment increased at a 3.1% annual rate, after declining at a 7.9% pace in the previous quarter. It was the first quarterly increase in a year.

U.S. exports, which have been hurt by the strong dollar, grew at a 10% annual rate in the third quarter, the best performance since 2013. Exports had grown at just a 1.8% rate from April through June and had declined in each of the three previous quarters.

The pace of consumer spending slowed to a still-solid 2.1% annual rate in the third quarter. That was down from an unusually strong 4.3% rate in the previous quarter.

Sohn said growth in exports, which were boosted by a one-time surge in soybean sales, and increased inventory building by businesses could slow in the fourth quarter. He added that it was “a bit worrisome” that the pace of consumer spending growth had slowed.

Fed officials are monitoring the economy closely to determine whether it is strong enough to warrant another small increase in the central bank’s benchmark short-term interest rate. The policymaking Federal Open Market Committee nudged the rate up in December after holding it near zero since late 2008 in an attempt to stimulate the economy.

Fed Chairwoman Janet L. Yellen said last month that the case for a rate hike had strengthened in recent months and that policymakers were “generally pleased” with the trajectory of the U.S. economy.

Lindsey M. Piegza, chief economist at brokerage firm Stifel Nicolaus & Co., said the report probably increased the chances of an interest rate hike.

“For the Fed, improvement is improvement, and for some committee members, this modest advance will help bolster their argument for a near-term rate increase by the end of the year,” she said.

But Piegza added that economic growth of below 2% this year “is hardly the conditions policymakers would prefer” almost a year after last year’s rate increase and is not “a sound backdrop” for continuing to raise the benchmark interest rate.

jim.puzzanghera@latimes.com

Follow @JimPuzzanghera on Twitter

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UPDATES:

9:05 a.m.: This article was updated with comments from economists and advisors to the Trump and Clinton campaigns.

This article originally was published at 6:10 a.m.


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