ibusinesslines.com
ibusinesslines.com December 14, 2018


US economy grew at 3.5% in Q3

29 October 2018, 11:28 | Kelvin Horton

US economy grew at 3.5% in Q3

US economy grew at 3.5% in Q3

The U.S. economy grew a robust 3.5 percent from July through September as consumer spending and government spending extended the nation's economic growth, the government said Friday.

That's a slowdown from 4.2 percent GDP growth in the previous three months, but a solid gain and the latest sign of stable economic productivity.

The US Commerce Department said strong consumer and government spending helped to bolster the economy.

Shipments were front loaded by USA farmers to China prior to the tariffs taking effect during early July, increasing growth in the second quarter.

Wall Street closed sharply lower but markets were less moved by the GDP data than by disappointing earnings.

Since then, soybean exports have declined every month, increasing the trade deficit.


Companies also built up inventories in a rush to import goods before they were subject to tariffs.

The report stated that the increase in real gross domestic product in the third quarter reflected positive contributions from personal consumption expenditures and private inventory investment, state, along with local government spending, federal government spending, and nonresidential fixed investment. "That said, the USA economy continues to grow in excess of the rate that most analysts consider to be its long-run potential growth rate". Analysts had forecast this turn-around, saying it reflected the surge in exports of goods such as soybeans in the spring as producers tried to beat the higher tariffs being imposed by China in retaliation for Trump's tariffs.

They noted that Friday's GDP report showed business investment slowed dramatically in the third quarter, growing at an annual rate of just 0.8 per cent, the weakest in almost two years, after a much stronger 8.7 per cent gain in second quarter. Strong domestic demand, however, sucked in imports of consumer goods and motor vehicles. "That suggests some of this stimulus won't last, it's not going to turn into higher-trend growth through the channel of investment and greater capacity and greater potential growth". US Treasury yields fell. "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". While the stock market itself is a poor indicator of the future of the economy, nearly every recession since World War II (when the government began collecting more economic data) has been led by a fall in business spending on structures and equipment or in housing construction. The rate was 2.0 percent for the first quarter of this year and 2.3 percent for all of 2017. That was the fastest pace since the fourth quarter of 2014 and followed a 3.8 per cent pace of increase in the second quarter.

Excluding the effects of trade and inventories, economists estimate GDP grew 2.8 percent in the third quarter compared to 4.0 percent in April-June. In addition, the stock market turmoil is seen reducing household wealth.

The Fed raised rates in September for the third time this year and removed a reference to monetary policy remaining "accommodative" from its policy statement.

Total exports fell 3.5 per cent, the weakest showing since the end of 2016, while imports gained 9.1 per cent, the fastest growth since the end of past year. Shares of Caterpillar Inc., an economic bellwether, tumbled this week after the maker of mining and construction equipment said manufacturing costs were higher due to rising material and freight costs. The housing market contracted at its steepest pace in more than a year in the third quarter, also dimming the economy's outlook.



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