U.S. GDP report shows economy grew at a slower pace

29 October, 2018, 11:26 | Author: Mary Valdez
  • US economy grows 3.5% in 3Q as consumers, government spending boosts GDP

"Growth downshifted a bit in Q3 and we look for some further slowing in the quarters ahead".

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

"We were told we'd get 3 percent growth", he said, adding, "That's more than double the growth rate that President Trump inherited".

A healthy jobs market with the lowest unemployment rate in 49 years, coupled with strong consumer confidence, likely supported consumer spending, the biggest driver of the United States economy. Americans are buying more because of increasing wages, a lower unemployment rate and the new tax law Trump signed in December that slashed corporate taxes and lowered income tax rates for many individuals. Declining U.S. exports and a drop in business investment are partly responsible for growth cooling between the second and third quarters, the Commerce Department noted.

However some analysts see a slowdown looming.

These gains helped offset the drag from trade.

The impact of higher borrowing costs appears to be taking a toll in two sectors that consumers usually have to finance: housing and vehicle purchases. At the same time, inflation cooled in the third quarter.

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. That likely reflected higher short-term interest rates, low housing inventory and tax-code changes that diminished decades-old perks that encouraged homeownership.

Another likely area of weakness is housing; much of the data on residential investment during the third quarter was weaker than expected.

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Another big swing factor in the third quarter was business restocking of their shelves. Spending on structures fell at a 7.9% rate in the third quarter.

China's economic growth is expected to reach around 6.6 percent in 2018, according to a research report jointly released by Economic Information Daily, Xiamen University and University of London on Thursday.

The growth on retail sales of consumer goods will be 9.34 percent in 2018, a decrease of 0.96 percentage points over the previous year, and it will rebound to 9.74 percent in 2019.

"The bottom line on trade is that final domestic demand is rising faster than domestic supply, so the trend in the deficit is bound to continue deteriorating", Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.

Hurricane Florence, which made landfall in North Carolina on September 14, "disrupted consumption and business activities, including utilities", while emergency and other services "likely increased in response to the disaster", the Commerce Department said. Excluding food and energy, the central bank's preferred price index also rose at a 1.6% rate.

NPR reported that private analysts had expected a 3.4 percent growth rate in gross domestic product for the third quarter.

Output rose 3.0% in the third quarter from the same period of 2017.

"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.

But there is a big difference in how tax cuts affect economic growth in the short run versus the long run, Gale added.

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