U.S. economy keeps growing strong at 3.5% in the third quarter

U.S. economy keeps growing strong at 3.5% in the third quarter

Consumers drove the USA economy to better-than-expected growth in the third quarter, but a steep slowdown in business spending raised concerns about whether the strength in the expansion is sustainable.

"U.S. real GDP grew at an annualized rate of 3.5% in Q3-2018 on a sequential basis".

"Today's 3.5 percent GDP print slightly beat estimates and, similarly to the 4.2 percent Q2 print, this is because still-easy monetary conditions were mixed with a heavy dose of fiscal stimulus", said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors.

Trade, which had boosted second quarter growth by 1.2 percentage points, shaved 1.8 percentage points off growth in the third quarter.

Trump in recent weeks has accelerated his attacks on the Federal Reserve for raising interest rates, contending that the higher rates by slowing the economy will work against his efforts to speed up growth through the $1.5 trillion tax cut package Trump got Congress to pass previous year. Declining U.S. exports and a drop in business investment are partly responsible for growth cooling between the second and third quarters, the Commerce Department noted.

Bureau of Economic Analysis said the increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures, private inventory investment, state and local government spending, federal government spending, and nonresidential fixed investment that were partly offset by negative contributions from exports and residential fixed investment.

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Meanwhile, American imports, which subtract from GDP calculations, rose sharply, largely driven by purchases of autos and consumer goods.

Trump has promised to achieve annual growth rates of 3 per cent, in part through a sweeping tax overhaul he signed into law last December that lowers levies on U.S. corporations and - to a lesser extent - many ordinary Americans. This flipped the second quarter's results on their head, when Chinese importers raced to build stockpiles ahead of July's retaliatory tariffs by Beijing.

This is published unedited from the PTI feed.

One factor stands out: Government spending is playing a major role in the current economic expansion. The report was one of the last major economic indicators before Election Day (there will be one more jobs report released November 2). "Even if those paychecks aren't growing as fast as we might like, that's going to fuel economic growth and in this report, in fact, the strongest sector was consumer spending". The Conference Board's measure of consumer confidence rose in September and retail sales grew 4.7 percent last month from a year earlier. There were also decreases in exports of petroleum and non-automative capital goods. Business investment, which had surged at an 8.7 per cent rage in the second quarter, slowed to a small 0.8 per cent gain the third quarter. Imports are a drag on GDP growth. The rate was 2.0 percent for the first quarter of this year and 2.3 percent for all of 2017. Borrowing costs also may keep rising, as investors project the Federal Reserve will raise the benchmark interest rate for a fourth time this year in December.

"The stock market is going to go up and down", he said.

GDP growth last quarter benefited from a rebuilding of inventories, which dragged down expansion in the prior period amid tariff-related supply chain disruptions and steady demand.

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