US Economy Grows By 3.5% In Third Quarter


United States gross domestic product increased at a 3.5% annualised rate also supported by solid government spending, the Commerce Department said.

The report was the Commerce Department's first of three estimates of Gross Domestic Product (GDP) growth between July and September.

Bloomberg's USA chief economist Carl Riccadonna said following the report that, "The composition of growth in the third quarter has some important implications". Government spending rose by the most since 2016. It was certain to be cited by President Donald Trump as evidence his economic policies are working.

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

Council of Economic Advisers Chair Kevin Hassett on the state of the economy, reports China is no longer buying USA debt and the potential impact of socialism on the economy.

Paul Ashworth, chief U.S. economist at Capital Economics: "The current strength of the economy is largely due to the boost from the massive fiscal stimulus at the start of this year. This report shows the fiscal stimulus has a transitory response".

Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former Fed economist, said the GDP report is consistent with the central bank's forecast. "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. The two quarters marked the strongest consecutive quarters of growth since 2014.

"For GDP to rise above estimates of around 2.5 percent growth next year, businesses are going to have to kick in with higher wages as the workforce tightens, and with more investment", Frick said. "Imports, which are a subtraction in the calculation of GDP, increased".

However, economists say the underlying numbers offer grounds for concern. Excluding government spending, the measure of private demand also rose 3.1%. In the second quarter, real GDP increased 4.2 percent.

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Even so, the GDP figures give Trump a timely talking point during campaign rallies and yet another chance to claim the robust expansion for his own after the biggest tax overhaul since the Reagan era.

The Congressional Budget Office estimated GDP growth would spike in 2018 but drop to more moderate levels in the coming years. For investment to fall at a time when the economy is booming and corporations are flush with cash from the big corporate tax cuts that went into effect this year is a sign that businesses don't think that the good times will continue. 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. The economy has reverted back to the "same old" model of consumers accounting for most of the growth.

"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.

Nonresidential fixed investment - which includes spending on equipment, structures and intellectual property - contributed just 0.12 percentage point to growth, after 1.15 point in the second quarter. "Specifically, overall fixed investment spending contracted 0.3%".

Housing continued to be a drag, falling for a third straight quarter. According to analysts, the industry is slowing amid higher prices and rising mortgage rates.

But the sudden inventory build is unlikely to last.

The trade component reflected a widening deficit, with a 3.5% decline in exports and a 9.1% increase in imports.

Shipments were front loaded by US farmers to China prior to the tariffs taking effect during early July, increasing growth in the second quarter.