Published: Tue, October 30, 2018
Markets | By Josh Butler

Spending Slowdown Casts Shadow on Solid U.S. GDP Report

Spending Slowdown Casts Shadow on Solid U.S. GDP Report

Republicans praised the 3.5 percent third-quarter growth rate announced Friday as more evidence that President Donald Trump's agenda of deregulations, renegotiated worldwide trade deals, and tax cuts for individuals and corporations is working.

"Next year, as the boost from fiscal stimulus is fading and the lagged impact of higher interest rates begins to weigh more heavily, we expect GDP growth to slow below its 2% potential pace", Michael Pearce, senior USA economist at Capital Economics, said in a note.

Figures released Friday by the US government said gross domestic product decelerated a bit to a 3.5% annual pace in the third quarter, down from torrid 4.2% pace in the prior three months. "And today's GDP numbers show that the GDP is on track to grow over 3 percent for the FIRST TIME in 13 years". "Defying "conventional wisdom" once again, 3.5 percent growth is the latest sign that the Trump economy continues to surge", Ross said. The Commerce Department will publish its snapshot of third quarter economic growth on Friday at 0830 a.m. (1230 GMT). Growth in consumer spending, which accounts for more than two-thirds of United States economic activity, increased at a 4.0 per cent rate in the third quarter.

Bloomberg's USA chief economist Carl Riccadonna said following the report that, "The composition of growth in the third quarter has some important implications".

Meanwhile, American imports, which subtract from GDP calculations, rose sharply, largely driven by purchases of autos and consumer goods. Non-residential fixed investment grew at just a 0.8 percent, and the Economic Policy Institute said that such investment is growing more slowly in the first three quarters of 2018 than it did in the same period in 2017 - before the tax cuts went into effect.

Other decreases existed for exports of nonautomotive capital goods and petroleum.

This is published unedited from the PTI feed.

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The Fed noted recently its projection of annual growth to 3.1%, while since the financial crisis ten years ago, the recovery has been the slow and poor of history.

Trade also dragged down growth by the most in 33 years, amid ongoing tariff battles with large trade partners such as China. By buying more, the importers seem to have anticipated, in July and August the second round of tariffs on chinese goods imposed in September. "Consumer was stronger than we expected", added a senior economist.

A 3.5% growth in the 3rd quarter is the second strongest in the past four years, after the 2nd quarter of 2018. "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.

Consumer spending compared with projections for a 3.3% advance and followed the second quarter's 3.8% gain. Excluding food and energy, the central bank's preferred price index also rose at a 1.6% rate. 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.

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.

"The stock market is going to go up and down", he said.

Housing continued to be a drag, falling for a third straight quarter.

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