Sunday, 18 November, 2018

US economy grows 3.5% in third quarter

US economy grows 3.5% in 3Q as consumers, government spending boosts GDP US economy grows faster than expected
Lindsey Cook | 30 October, 2018, 12:28

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, is expected to have been strong in the third quarter after a 3.8 percent increase in the second quarter.

GDP is the official measuring stick for the USA economy.

"Every time we do something great, he raises interest rates", Trump said in an interview this week with the Wall Street Journal in which he again said he viewed the Fed as the "biggest risk" facing the economy "because I think interest rates are being raised too quickly". Exports, which had surged at a 9.3 per cent rate in the second quarter, fell at a 3.5 per cent rate in the third quarter. The two quarters marked the strongest consecutive quarters of growth since 2014. "And, of course, recent reductions in personal income tax rates are also a tailwind for the economy", Clarida said. That hasn't happened since 2005. The government said it couldn't estimate the overall impact of the storm on third-quarter GDP.

According to the "advance" estimate released by the Commerce Department on Friday, the main drivers of growth in the third quarter were personal consumption expenditures, private inventory investment, and government spending.

Businesses also spent much less on building factories and offices than they had, as investment in structures fell 7.9 per cent, the largest drop in almost three years.

With the unemployment rate at its lowest mark since 1969, the Fed has been raising interest rates to prevent annual inflation from taking off. Prices now are rising at an annual rate of 2 percent, according to the Fed's preferred gauge. The rate was 2.0 percent for the first quarter of this year and 2.3 percent for all of 2017. That was driven by an unwinding of the hefty boost from net exports in the second quarter when US exporters of soybeans and other products accelerated shipments to beat retaliatory tariffs from overseas.

Last month, the Federal Reserve boosted its growth projection to 3.1 percent for 2018, but it saw growth slowing to 2.5 percent next year.

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That's slower than the second quarter's blockbuster 4.2 percent, but it puts the economy on pace for the fastest annual growth in 13 years. Analysts had cautioned that the previous increase in exports was sparked by looming tariffs by China in its ongoing trade war with the United States.

"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.

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

Excluding the volatile trade and inventories components of GDP, final sales to domestic purchasers increased at a 3.1% pace, slowing from 4%.

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. In addition, the stock market turmoil is seen reducing household wealth.

From July to September, trade tensions and a drop in exports of american goods (-3,5%) -in particular soya hit by the retaliatory tariff on chinese- behind the slowdown compared to the 2nd quarter. "Housing remains a drag, however, as rates rise".

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