U.S. economy grew at strong 3.5 per cent rate in Q3

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 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.

For this year, economists are projecting the momentum built up should result in growth of 3 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, with a further decline to under 2 per cent in 2020.

Trump in recent weeks has accelerated his attacks on the Federal Reserve for raising interest rates, contending that the higher rates by slowing the economy will work against his efforts to speed up growth through the $1.5 trillion tax cut package Trump got Congress to pass last year.

The central bank has raised rates three times this year and signalled it will raise rates one more time this year, and expect to raise rates three times in 2019. Those moves are being made to ensure that tight labour markets, with unemployment at a 49-year low of 3.7 per cent, and strong growth don’t trigger unwanted inflation.

The GDP report was the government’s first of three reviews of overall economic activity for the July-September period.