Monday, 12 November, 2018

US economy grew at strong 3.5 percent rate in Q3

US economy grows 3.5% in 3Q as consumers, government spending boosts GDP US economy grows faster than expected
Andy Castillo | 30 October, 2018, 12:31

Inventory investment is expected to have added as much 2 percentage points to GDP growth after slicing off 1.1 percentage points from output in second quarter.

However, there are a few troubling signs, he said, in today's announcement including housing spending, business spending, and declining US exports.

China's economic growth is expected to reach around 6.6 percent in 2018, according to a research report jointly released by Economic Information Daily, Xiamen University and University of London on Thursday.

The result made for the strongest six-month period since mid-2014 and puts growth above the prevailing trend for most of the recovery since the Great Recession, although it is based on preliminary data subject to revision. That hasn't happened since 2005. Spending on motor vehicles and parts added just 0.09 percentage point to third-quarter GDP.

A healthy jobs market with the lowest unemployment rate in 49 years, coupled with strong consumer confidence, likely supported consumer spending, the biggest driver of the USA economy.

Business spending stalled and residential investment declined for a third straight quarter, signs that the boost from a $1.5 trillion tax cut was fading and higher interest rates were hurting the housing market.

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Two of the main reasons for the boost are a rise in government defense spending, as well as consumer spending, which jumped 4 percent in the third quarter. Nonresidential fixed investment-reflecting spending on commercial construction, equipment and intellectual property products such as software-rose only 0.8% in the third quarter after rising at a 8.7% rate in the second quarter and 11.5% in the first.

Net exports also declined from a surge last quarter as manufacturers and farmers rushed to sell their goods overseas in advance of expected retaliatory tariffs from China.

The third-quarter report follows the 4.2 percent growth in the second quarter and is the last major window into the US economy before the midterm elections. The GDP report showed the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 1.6 per cent rate in the third quarter. However, since that time exports of soybeans have dropped each month which increased the trade deficit.

"Generally, the U.s. economy continues to show resilience as it is more than 3% year-over-year, its pace is the highest in the last three years", pointed out Greg Daco economist for Oxford Economics.

However, the drag from trade was probably offset by faster inventory accumulation by businesses stockpiling before US import duties, on mostly in Chinese goods, came into effect. "It appears most business leaders have become somewhat cautious about the future and are holding off committing to major investment plans", said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. During the past 4 quarters, GDP has grown 3.0 percent.

"The stock market is going to go up and down", he said. 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 "second" estimate for the third quarter, based on more complete data, will be released on November 28". 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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