United States economy keeps growing strong at 3.5% in the third quarter

United States economy keeps growing strong at 3.5% in the third quarter

Earlier this week, The Wall Street Journal wrote, "A stark pickup in government spending, particularly in defense, has helped fuel a broad acceleration in USA economic growth in the past year and a half", with the sharp uptick in outlays associated with the budget deal earlier this year accounting for almost half of the economic growth during that time. That was up from a rate of 3.8% recorded in the previous 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.

"The report shows strong growth still on trend with consumption better than expected".

The BEA report shows 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.

Real GDP can be higher than real potential GDP if the economy gets extra stimulus from government spending or tax cuts.

White House takes credit: Commerce Secretary Wilbur Ross attributed the strong growth to Trump administration policies.

The U.S. economy is firing on all cylinders.

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

The Bureau of Economic Analysis (BEA) found the economy grew at 3.5 percent during the third quarter, which beat expectations.

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However, the drag from trade was probably offset by faster inventory accumulation by businesses stockpiling before USA import duties, on mostly in Chinese goods, came into effect. They estimate a 0.1 percentage-point boost to GDP from corporate America, down from 1.2 percentage points in the second quarter.

Residential invested dropped and business spending became stagnant for a third consecutive quarter, which are signs that the boost from a tax cut of $1.5 trillion is fading and the increase of interest rates were hurting the overall housing market.

"Growth figures are likely to slow from here heading into 2019, but there are still plenty of signs of further expansion for the US ahead", Nationwide Senior Economist Ben Ayers said via email. 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 U.S. economy is still expanding at a solid pace, with third-quarter GDP growth hitting 3.5 percent according to an initial estimate released by the Commerce Department Friday.

Within that category, spending on structures shrank 7.9%, the biggest drop in nearly three years, after a 14.5% surge in the prior period that partly reflected investment in oil production. But headwinds are building.

Inventories increased at a $76.3 billion rate after declining at a $36.8 billion pace in the second quarter.

"The risk to the expansion from elevated inflation moved up early in the year, but has eased over the last six months and remains modest compared to risks in the 2000s or in 2011", the authors wrote. The rate was 2.0 percent for the first quarter of this year and 2.3 percent for all of 2017.

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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