USA economy grows 3.5% in 3Q as consumers, government spending boosts GDP

US economy grows 3.5% in 3Q as consumers, government spending boosts GDP

However, strong consumer and government spending helped to bolster the economy.

"We expect stronger growth in the first half of 2019 to give way to a gradual softening in the second half of the year as government spending, corporate profits and disposable income begins to decelerate as the benefits of the fiscal stimulus measures fade", said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. Shares of Caterpillar Inc., an economic bellwether, tumbled this week after the maker of mining and construction equipment said manufacturing costs were higher due to rising material and freight costs.

There's mounting anecdotal evidence that President Donald Trump's trade war is causing trouble for the U.S. economy and businesses.

As the chart below shows, the Congressional Budget Office estimated the USA economy would grow 3.3 percent this year.

Analysts said the slowdown could be an indication that last December's tax cuts, which offered special breaks for business investment, were beginning to wane.

Third quarter GDP topped expectations and shows the US economy continues to grow at a strong rate.

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However, there are a few troubling signs, he said, in today's announcement including housing spending, business spending, and declining USA exports.

Mick Mulvaney, head of the president's budget office, said in a CNBC interview that while business investment was flat this quarter, it followed several quarters when investment has been "fantastic". In addition, the stock market turmoil is seen reducing household wealth.

However, strong demand in the USA brought in large numbers of imported motor vehicles and consumer goods.

"The economy is still growing significantly above its potential, which is pretty remarkable", said economist Michael Strain of the American Enterprise Institute, citing an expansion that has not experienced a recession since 2009.

"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". Those moves are being made to ensure that tight labour markets, with unemployment at a 49-year low of 3.7 per cent, and strong growth don't trigger unwanted inflation.

After stripping out the volatile categories of trade, inventories and government spending, final sales of domestic product rose at an annual rate of 1.4% - lower than the overall GDP number.

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The economy did grow slower than the 4.2% pace of growth seen during the second quarter, but still indicates that economic growth remains strong after tax cuts passed by the President Donald Trump late previous year.

Economists polled by Reuters had forecast GDP expanding at a 3.3% pace in the third quarter.

"T$3 he trade deficit expanded rapidly and subtracted 1.8 percentage points from growth this quarter".

The third-quarter rate of business investment was the weakest since the fourth quarter of 2016.

Private inventories added 2.07 percentage points to the third-quarter growth rate, a reversal from the second quarter when companies drew down on stockpiles to get ahead of retaliatory tariffs. Those exports dropped in the third quarter and could continue to drop if the tariffs remain in place.

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