Published: Mon, October 29, 2018
Business | By Eloise Houston

USA economy grows 3.5% in third quarter

USA economy grows 3.5% in third quarter

The latest figures give President Donald Trump - who has frequently promised at least 4 percent GDP growth- something to point to as evidence that his policies are helping the economy.

Since then, soybean exports have declined every month, increasing the trade deficit. 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.

But none of this is unexpected.

"Generally, the U.s. economy continues to show resilience as it is more than 3% year-over-year, its pace is the highest in the last three years", pointed out Greg Daco economist for Oxford Economics.

"The President's actions from deregulation to tax reform have supercharged the American economy, driving it to new heights", Ross said in a statement.

The economy has been expanding in the 2 percent range in the past few years, but growth spiked in the second quarter, boosted by consumer spending and exports.

Strong consumer spending was driven by historically low unemployment, rising wages, record high consumer sentiment, and lower tax rates, according to Stoyan Panayotov, CEO at Babylon Wealth Management.

"Lots of people are working and drawing paychecks", he said.

Consumers and companies were still enjoying a cash boost from the tax cuts, according to the Commerce Department.

But there is a big difference in how tax cuts affect economic growth in the short run versus the long run, Gale added. GDP rose 3% from a year earlier, the most on that basis since 2015 and matching the administration's goal.

GDP is the value of all goods and services produced in an economy, adjusted for inflation, ... Financier and former Obama administration official Steven Rattner highlighted the government spending factor in a tweet: "Note the resurgent contribution to growth from government spending which added 0.6-ppnts over 3Q with both defense and non-defense on the rise".

"There will come a day of reckoning for the economy after the tax cut monies are all gone, but for today Washington really has something to crow about", said Chris Rupkey, chief economist at MUFG in NY. "That's pretty good news, right?"

Businesses contributed less to economic growth in the July through September quarter as investment dropped.

The Federal Reserve typically tries to steer a middle course between runaway growth that fuels inflation and slow growth that doesn't create enough jobs.

But the housing market is starting to slow, amid higher interest rates.

Conservative analysts said they weren't too anxious about inflation because the new tax law is meant to encourage investment, not just spending.

Investors have become less sanguine on the outlook amid the latest run of US company earnings reports, though stocks regained some ground October 25.

In the end, simultaneous spikes in investment and consumer spending could balance each other out, leaving the price of most goods largely unchanged.

On Friday, October 26, the USA stock market fell again.

There is another threat to future real GDP growth as well: tariffs.

"The bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency", the BEA wrote.

Housing remained a weak spot, posing the third consecutive drag on GDP growth, with a contraction of 4%.

Sen. Pat Toomey (R-Penn.) said the economy is now stronger than it has been in more than a decade.

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