Washington (AFP) – A jump in US government spending and business investment in the July-September period held economic growth at a solid 3.5 percent rate, despite a slowdown in consumer spending, the government reported Wednesday.
Adding to the strong 4.2 percent growth pace in the second quarter, the US GDP report confirms President Donald Trump’s tax cuts have helped businesses but it also contains signs of slowing auto and home purchases.
Despite the headwinds from Trump’s trade wars, the Commerce Department report showed third quarter GDP growth was unchanged from the initial estimate released last month. Analysts expected the figure to be revised upward slightly.
That made for the strongest six-month period since mid-2014.
But rising interest rates and even labor shortages are beginning to bite in the housing market.
The report showed spending on homes fell 2.6 percent in the quarter, although that was a much smaller decline than originally reported.
And consumer spending increased by a smaller amount than estimated in last month’s report, primarily due to lower spending on cars and trucks, the Commerce Department said.
Despite the robust growth, the data shows the trade war with China and other countries continues to be a drag on the US economy and hundreds of billions in goods are subject to punitive tariffs.
Exports fell 4.4 percent in the quarter, a full point more than the initial estimate, but imports climbed 9.2 percent.
Jim O’Sullivan, of High Frequency Economics, noted that the US trade deficit had continued to climb, “suggesting a drag on GDP from net exports” into the final quarter of the year as well. But he added that this had been partially offset by a surge in inventories.
“Our Q4 growth rate estimate remains at 3.0%, down from 3.5% in Q3, but still solid,” he said in a research note.
– Business investment boost –
Many economists are looking for the US to post 3.1 percent growth rate for the year before slowing in 2019 as the effects of the tax cuts dissipate and trade tariffs crimp exports and raise prices.
So far prices have not fueled an increase in inflation but companies have complained about rising cost for materials, including steel and aluminum.
But economists note that business investment is buoying growth going into the end of the year.
The downward revisions in the third quarter data were offset by big improvements in business and federal government spending.
After initially showing a decline, business fixed investment — spending on structures and equipment — rose 1.4 percent in the quarter.
And federal defense spending was higher than initially reported, even as state and local spending was much smaller.
“Momentum remained firm heading into Q4, with real GDP still trending at 3.0% y/y – the fastest pace since early-2015,” Gregory Daco of Oxford Economics said.
But he agreed growth was likely to moderate next year, due to “increasing protectionism and slowing global activity,” among other factors.
US equities markets opened higher following the GDP news but the session was seeing choppy trade toward 1700 GMT after the government also reported new home sales had fallen to a near three-year low.
While the hurricane-ravaged South saw a big decline in sales, the weakness was most pronounced in the Northeast and Midwest which saw double-digit drops, according to the Commerce Department data.
Trump warned of new auto tariffs following an announcement that General Motors planned to close several factories and a Federal Reserve report sounding a strong warning about risks to financial stability.
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