Economy grew at 3.5 percent rate in 3rd quarter

US economy grows 3.5% in 3Q as consumers, government spending boosts GDP

Businesses contributed less to economic growth in the July through September quarter as investment dropped.

Growth in consumer spending, which accounts for more than two-thirds of USA economic activity, is expected to have been strong in the third quarter after a 3.8 percent increase in the second quarter.

Yet a trade war exists between Washington and Beijing as well as other trade disputes between the US and other trade partners, with the slowdown last quarter mostly reflecting the retaliatory tariffs impact that Beijing imposed on exports from the USA including soybeans.

Wall Street, which is suffering from disappointing company results, with Google and Amazon in particular, in the midst of a crisis of volatility, has ignored the growth and remained in the red on Friday. Exports declined by 3.5 percent and imports increased by 9.1 percent in the third quarter.

"The risk to the expansion from elevated inflation moved up early in the year, but has eased over the last six months and remains modest compared to risks in the 2000s or in 2011", the authors wrote.

"The economy is still growing significantly above its potential, which is pretty remarkable", said economist Michael Strain of the American Enterprise Institute, citing an expansion that has not experienced a recession since 2009. That hasn't happened since 2005.

"The big swings in trade and inventories between the second and third quarters are likely at least partially due to changes in activity associated with trade policy", said Daniel Silver, an economist at JPMorgan in NY.

Business spending on equipment is also forecast to have supported growth in the third quarter.

In addition, real consumer spending grew four per cent at an annual rate in the third quarter, substantially up from the 2.6 per cent pace during the preceding four quarters, it said.

Net exports also declined from a surge last quarter as manufacturers and farmers rushed to sell their goods overseas in advance of expected retaliatory tariffs from China.

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"We were told we'd get 3 percent growth", he said, adding, "That's more than double the growth rate that President Trump inherited".

The $1.5 trillion tax cut passed by Congress late a year ago was one pillar of President Trump's plan to boost economic growth to the above-3% rate that marked the robust expansions of the 20th century.

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 almost two years, after a much stronger 8.7 per cent gain in second quarter.

"Today's 3.5 percent GDP print slightly beat estimates and, similarly to the 4.2 percent Q2 print, this is because still-easy monetary conditions were mixed with a heavy dose of fiscal stimulus", said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors.

The GDP report Friday was the government's first of three reviews of overall economic activity for the July-September period. The third-quarter increase was broad-based and led by wholesale trade, particularly farm products, and manufacturing, according to the Commerce Department.

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

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.

Former White House economist Jared Bernstein said the strong showing reflects the fact that so many people are in the job market. So far, much of the money from the tax cuts is not going directly to investments, but instead to stock buybacks, something Democrats predicted in their opposition of the bill.

Housing continued to be a drag, falling for a third straight quarter.

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