US trade conflicts weigh on solid growth in third quarter
Tesla faces criminal probe for Model 3
ROBUST US GDP growth continued in t he t hird quarter but at a slower pace just ahead of key congressiona l elections, while the economy faces mounting headwinds from trade wars, the Commerce Department reported Friday.
Coming just 11 days before a nailbiting midterm vote t hat could shift the balance of power in Washington, the new figures show t he world’s largest economy still has a big head of steam after ta x cuts and fiscal stimulus enacted over t he last year.
However, economists say the underlying numbers offer grounds for concern.
GDP grew at a brisk annual rate of 3.5 per cent for t he July-September period, according to the government’s initia l estimate, down sharply from 4.2 per cent grow th i n the prior quarter but still overshooting analyst expectations.
The result made for the strongest si x-month period since mid-2014 and puts grow th above the prevailing trend for most of t he recover y since t he Great Recession, a lt hough it is based on preliminar y data subject to rev ision.
President Donald Trump is banking on faster grow t h to pay for t he December ta x cuts and increased government spending, which nevertheless drove the US budget deficit to a si x-year high in t he most recent fiscal year.
Commerce Secretar y Wilbur Ross said the economic grow th had defied “conventiona l wisdom” and credited the Trump administration’s economic policies.
“The president’s actions from dereg ulation to ta x reform have supercharged the American economy, driv ing it to new heights,” he said in a statement.
But economists say grow th should slow in the coming quarters as ta x cuts and fiscal stimulus recede into the past while inflation mounts, interest rates rise, protectionist t rade measures continue to bite and grow th slows i n t he world’s ot her major economies.
“The latest healt h check-up revea led an ageing but still robust US economy,” Oxford Economics said in an analy tica l note.
“However, the doctor recommends avoiding any unnecessar y exposure to cold headwinds.”
Republican candidates appear to have shied away from campaigning on t he ta x cuts, as some voters remain skeptica l of claims they have directly helped ordinar y Americans.
Officia ls said t he GDP results a lso reflected damage from Hurricane Florence but t hey could not precisely estimate the impact on grow th.
Consumers and companies were still enjoy ing a cash boost from t he ta x cuts, according to the Commerce Department. Personal consumption rose four per cent, t he fastest since t he end of 2014.
Companies, notably farmers and machine makers, a lso spent libera lly to grow t heir inventories.
But the latest numbers a lso showed signs of continuing distortion from Trump’s trade wars with China and others. Economists say this poses a risk to grow th and caused the Internationa l Monetar y Fund to cut its globa l GDP forecasts for next year.
“The headline says strong grow th but there are warnings i n the details,” economist Joel Naroff said in a research note.
Soybean exports fel l sharply, weighing on grow th, according the Commerce Department. This flipped t he second quarter’s results on t heir head, when Chinese importers raced to build stockpiles ahead of July’s reta liator y ta rif fs by Beijing.
Meanwhile, American imports, which subtract from GDP calculations, rose sharply, la rgely driven by purchases of autos and consumer goods.
Tota l exports fell 3.5 per cent, t he weakest showing since the end of 2016, while imports gained 9.1 per cent, t he fastest grow t h since t he end of last year.
Businesses a lso spent much less on building factories and offices t han t hey had, as investment in structures fell 7.9 per cent, t he la rgest drop in nearly t hree years.
The struggling housing market was a lso a drag, fa lling by four per cent from t he prior quarter in its sharpest fa ll in more t han a year.
Wa l l St reet closed sha r ply lower but markets were less moved by t he GDP dat a t ha n by d i s appoi nt i ng ea r nings. US criminal investigators are probing whether Tesla Motors misled investors about the timetable for meeting key car production targets, a person familiar with the matter said on Friday.
The investigation was the yet another tangle with federal authorities for the electric automaker, whose share price was repeatedly buffeted earlier this year after a series of erraticseeming comments by Chief Executive Elon Musk.
The probe, which has been underway since earlier this year, concerns whether the automaker told investors it was on track with targets for the closely-watched build-out of the Model 3 car despite knowing it could not meet such goals, The Wall Street Journal reported Friday.
A Tesla spokesperson confirmed the company had received a “voluntary request” earlier this year from the US Department of Justice about its “public guidance for the Model 3 ramp” and cooperated with the request.
“We have not received a subpoena, a request for testimony or a ny ot her for ma l process, and there have been no a dd i t i on a l do c u ment requests about this from the Depa r t ment of Ju st ic e for mont hs,” t he Tesla spokesperson added.
Tesla and Musk have been under heightened scrutiny since Musk on Twitter floated a proposal in August to take Tesla private, saying he had “funding secured” for a deal.
Musk settled with the Securities and Exchange Commission over the matter last month, agreeing to pay a $20 million fine and step down as chairman to resolve allegations of fraud.
The Justice Department has also been probing Musk’s statements about taking the company private.
T he Wa l l St reet Jou r na l described the Justice Department’s probe of the Model 3 as “deepening,” saying the Federal Bureau of Investigation in recent weeks had sought to interview a number of former Tesla employees who had been subpoenaed earlier.
T he Te s l a spokesper son said the company had been “t ra nspa rent ” about “how dif f icult it would be” to meet ta rgets.
“Ultimately, given difficulties that we did not foresee in this first-of-its-kind production ramp, it took us six months longer than we expected to meet our 5,000 unit per week guidance”.