USA economic growth slows slightly in third quarter; outlook less upbeat

Soybeans are offloaded from a combine as a farmer harvests crops in Indiana

"The effects of expansionary fiscal policy also showed up in government spending, which shot up 3.3% in the third quarter, the strongest sequential rate of growth in more than two years". While President Trump hailed the headline figure of 3.5% growth in GDP, there were serious signs of weakness in the quarterly report.

The economy grew at a robust 3.5 percent in the three months that just ended, the Commerce Department reported Friday-a slowdown from the breakneck pace earlier in the year but one that indicates a solid rate of economic expansion.

The report stated that the increase in real gross domestic product in the third quarter reflected positive contributions from personal consumption expenditures and private inventory investment, state, along with local government spending, federal government spending, and nonresidential fixed investment. The American economy looks like it will expand above a 3% rate in 2018.

Soybean exports fell sharply, weighing on growth, according the Commerce Department.

With the unemployment rate at its lowest mark since 1969, the Fed has been raising interest rates to prevent annual inflation from taking off. Prices now are rising at an annual rate of 2 percent, according to the Fed's preferred gauge.

Bloomberg's US chief economist Carl Riccadonna said following the report that, "The composition of growth in the third quarter has some important implications". Exports spiked in the second quarter because producers were trying to sell their products before the Trump administration's new tariffs - on goods like steel and electronics from China and other countries - kicked in.

This is published unedited from the PTI feed.

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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.

Government spending continues to fuel growth, especially on defense, which grew 4.5%. By buying more, the importers seem to have anticipated, in July and August the second round of tariffs on chinese goods imposed in September. The second quarter's pace of growth was the best in four years.

"Given the fiscal stimulus, it's going to take a lot to derail this economy and I don't think that's going to happen anytime soon", said Ryan Sweet, senior economist at Moody's Analytics. 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.

Consumer spending compared with projections for a 3.3% advance and followed the second quarter's 3.8% gain. Well, not always, because having GDP growth above potential GDP typically leads to higher prices, also known as inflation.

The Fed raised rates in September for the third time this year and removed a reference to monetary policy remaining "accommodative" from its policy statement. In addition, the stock market turmoil is seen reducing household wealth.

Within that category, spending on structures shrank 7.9%, the biggest drop in nearly three years, after a 14.5% surge in the prior period that partly reflected investment in oil production.

GDP growth last quarter benefited from a rebuilding of inventories, which dragged down expansion in the prior period amid tariff-related supply chain disruptions and steady demand.

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