US economy grows faster than expected in Q3

30 October, 2018, 12:30 | Author: Kathy Ellis
  • US economy grows 3.5% in 3Q as consumers, government spending boosts GDP

The broadest measure of US stocks, the S&P 500, which measures the prices of 500 of the largest corporations in the United States, fell 1.7%, ending the day below where it started the year in January.

On Wall Street, stocks were expected to open sharply lower amid fears about top technology stocks such as Amazon and Google-parent Alphabet, which reported disappointing results before trading began.

Although there was speculation that because of the 2017 Tax Cuts and Jobs Act, which slashed the corporate tax rate to 21 percent from 35 percent, GDP could grow as much as 5 percent each quarter, Hassett dismissed that. That hasn't happened since 2005.

The US' GDP expanded by 2.5 per cent in the first quarter and by 4.2 per cent between April and June.

The US economy slowed less than expected in the third quarter as a tariff-related drop in soybean exports was partially offset by the strongest consumer spending in almost a four years and a surge in inventory investment. Investment spending in new residences has now fallen for three quarters (nine months) in a row and the decline seems to be picking up.

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. Excluding food and energy, the central bank's preferred price index also rose at a 1.6% rate. 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.

"Growth figures are likely to slow from here heading into 2019, but there are still plenty of signs of further expansion for the USA ahead", Nationwide Senior Economist Ben Ayers said via email.

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The $1.5 trillion tax cut passed by Congress late previous year was one pillar of President Trump's plan to boost economic growth to the above-3% rate that marked the robust expansions of the 20th century.

The report was the Commerce Department's first of three estimates of Gross Domestic Product (GDP) growth between July and September. Ian Shepherdson, chief economist at Pantheon Macroeconomics, summed it up this way: "In one line: Strong GDP growth hides soft capex and massive trade deterioration".

Personal consumption grew by 4% during the third quarter, better than the 3.3% pace expected by economists and faster than the 3.8% pace of consumption seen during the second quarter. The third-quarter increase was broad-based and led by wholesale trade, particularly farm products, and manufacturing, according to the Commerce Department.

Solid domestic demand and some front-loading of imports ahead of a January rise in levies on Chinese goods may further widen the trade gap.

Economists estimate the widening trade gap chopped off nearly 2 percentage points from GDP growth in the third quarter, which would reverse the 1.22 percentage point contribution in the April-June period.

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.

On Friday, October 26, the US stock market fell again. Spending on structures fell at a 7.9% rate in the third quarter.

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