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Surge in soybean sales boosted better-than-expected GDP data

Friday's report showing surprising strength in the U.S. economy was full of beans.

Soybeans, that is.

A bigger than expected 2.9 percent annual growth rate in the third quarter was cheered by analysts and investors as a sign that a moribund economy is finally picking up speed. The report, the last read on the U.S. economy's pace of growth before the election, was also seen as giving Democrats a solid talking point about the Obama administration's economic policies.

But a closer look at the numbers show that the economy may not be as strong as the headlines indicate.

Some nine-tenths of a percentage point of the gain came from a surge in soybean exports, much of which was shipped to China, an event that won't be repeated in coming quarters.

That may not sound like a lot. But nine-tenths of a percent of an $18.6 trillion economy works out to $167 billion. That's roughly the size of Iowa's annual economic output.

U.S. farmers are on track for a record soybean harvest of more than four billion bushels. At the same time, a poor harvest in Brazil boosted demand for the U.S. crop from big importers like China.

That's good news for U.S. farmers. But the resulting surge in net exports is a one-time boost that's unlikely to be repeated, according to economist Paul Ashworth at Capital Economics.

"It is still a welcome sign that the dollar appreciation in 2014 and 2015 is no longer weighing on exporters," he wrote in a note to clients. "Nevertheless, while overall exports added 1.2 percentage points to GDP growth, without the spike in soybean exports it would have added only 0.3 percentage points."

There were other signs that the economy remain weak. Consumer spending slowed, and investment in housing fell. And the growth of final sales — a measure of the overall strength in demand — rose by 1.4 percent in the third quarter after gaining 2.4 percent in the previous three months.

All of which points to an economy that is growing, but remains stuck in low gear.

"Weak productivity gains and slow labor force growth are reducing the potential for the economy to expand, so we really need to get realistic about what is possible," said Joel Naroff, chief economist at Naroff Economic Advisors. "It is not likely we will go back to any extended period of 3.5 percent or 4 percent or 5 percent growth that some claim they will create."