Tuesday, 20 November, 2018

United States economy grows by 3.5 per cent in third quarter

Consumer spending up in Feb jobless claims at 45-year low U.S. GDP Grew by 3.5 Percent in Third Quarter AP
Scott Davis | 30 October, 2018, 12:31

This was the Department's first estimate of third-quarter GDP growth.

Bloomberg's US chief economist Carl Riccadonna said following the report that, "The composition of growth in the third quarter has some important implications". In two volatile categories, inventories provided the biggest contribution since early 2015, while the drag from trade was the largest in 33 years.

Government spending continues to fuel growth, especially on defense, which grew 4.5%.

Commerce Secretary Wilbur Ross said the economic growth had defied "conventional wisdom" and credited the Trump administration's economic policies.

Joseph LaVorgna, chief economist for the Americas at Natixis:"Nonresidential fixed investment, which covers a panoply of firm-wide expenditures, increased less than 1 percent last quarter".

Yet a trade war exists between Washington and Beijing as well as other trade disputes between the US and other trade partners, with the slowdown last quarter mostly reflecting the retaliatory tariffs impact that Beijing imposed on exports from the USA including soybeans.

"Given the fiscal stimulus, it's going to take a lot to derail this economy and I don't think that's going to happen anytime soon", said Ryan Sweet, senior economist at Moody's Analytics. "And the tax cut they constructed with President Trump has been staggeringly tilted toward the rich and as inefficient and wasteful as fiscal stimulus could possibly be".

The latest economic report card capped a week of mixed economic news.

Former White House economist Jared Bernstein said the strong showing reflects the fact that so many people are in the job market.

However, economists say the underlying numbers offer grounds for concern.




In the end, simultaneous spikes in investment and consumer spending could balance each other out, leaving the price of most goods largely unchanged. Imports rose at a 9.1% rate, as Americans stepped up purchases of foreign goods.

Hurricane Florence, which made landfall in North Carolina on September 14, "disrupted consumption and business activities, including utilities", while emergency and other services "likely increased in response to the disaster", the Commerce Department said.

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

Even so, the GDP figures give Trump a timely talking point during campaign rallies and yet another chance to claim the robust expansion for his own after the biggest tax overhaul since the Reagan era.

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. "That said, the US economy continues to grow in excess of the rate that most analysts consider to be its long-run potential growth rate". "Analysts had expected the economy to slow somewhat after a blockbuster second quarter", The New York Times said, but "the economy remains on track to grow 3 percent or more this year, the first time it has achieved that pace since 2005". The core PCE price index rose at a 1.6% annual rate, down from a 2.1% rate in the second quarter. Similar to the second quarter's sudden surge in exports (mostly soybeans), inventories surged in the third quarter and added 2.2 percentage points to GDP.

Another likely area of weakness is housing; much of the data on residential investment during the third quarter was weaker than expected. Equipment investment cooled to a 0.4% advance, the slowest since 2016, and the rise in intellectual- property spending eased to a three-quarter low of 7.9%.

The weaknesses in the GDP report just add to the list of worries about the economy.

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. "Imports, which are a subtraction in the calculation of GDP, increased".

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

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