Consumers lead charge as U.S. economy grows at 3.5% rate
WASHINGTON The U.S. economy grew at a robust annual rate of 3.5 per cent in the July-September quarter as the strongest burst of consumer spending in nearly four years helped offset a sharp drag from trade.
The Commerce Department said Friday that the third quarter’s gross domestic product, the country’s total output of goods and services, followed an even stronger 4.2-per-cent rate of growth in the second quarter. The two quarters marked the strongest consecutive quarters of growth since 2014.
The result was slightly higher than many economists had been projecting. It was certain to be cited by U.S. President Donald Trump as evidence his economic policies are working. But some private economists worry that the recent stock market declines could be a warning signal of a coming slowdown. They noted that Friday’s GDP report showed business investment slowed dramatically in the third quarter, growing at an annual rate of just 0.8 per cent, the weakest in nearly two years, after a much stronger 8.7-per-cent gain in second quarter.
Analysts said the slowdown could be an indication that last December’s tax cuts, which offered special breaks for business investment, were beginning to wane. There was also concern that the slowdown could reflect adverse impacts from rising trade tariffs with businesses less reluctant to invest under the threat of a trade war between the United States and China.
Gregory Daco, chief U.S. economist for Oxford Economics, said he expects more modest GDP growth in coming quarters, citing the fading impact of the tax cuts, higher interest rates from the Federal Reserve and increasing trade tensions.
The GDP report along with next week’s unemployment report for October are the last major looks at the economy before voters go to the polls in the midterm elections.
Mick Mulvaney, head of the president’s budget office, said in a CNBC interview that while business investment was flat this quarter, it followed several quarters when investment has been “fantastic.” He also said the administration was not concerned about the stock market sell-off this month. “Certainly we follow it, but we don’t use it as an indicator of where we are headed.”
For this year, economists are projecting the momentum should result in growth of three per cent, the best annual showing in 13 years. But they believe the impact of Trump’s trade war with China and rising interest rates will slow growth in 2019 to about 2.4 per cent.