U.s. growth remains strong, but the trade tensions weigh

Sean Reid
October 30, 2018

Earlier this week, The Wall Street Journal wrote, "A stark pickup in government spending, particularly in defense, has helped fuel a broad acceleration in US economic growth in the past year and a half", with the sharp uptick in outlays associated with the budget deal earlier this year accounting for almost half of the economic growth during that time.

The overall figure was slightly higher than many economists had been projecting, and puts the USA on track to hit an average of 3 percent GDP growth for the year-a psychologically important figure that President Donald Trump has promised as a result of his economic policies.

However, strong demand in the US brought in large numbers of imported motor vehicles and consumer goods. But there were red flags to the economic expansion that is now in its ninth year and the second longest on record.

According to the Department of Commerce, the increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures, private inventory investment, state and local government spending, Federal government spending, and nonresidential fixed investment.

‏Sen. Roger Wicker (R-Miss.) echoed the sentiment, while adding that the report is the latest indicator that Republican policies like tax and regulatory cuts have reenergized the economy.

White House takes credit: Commerce Secretary Wilbur Ross attributed the strong growth to Trump administration policies.

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.

The GDP report Friday was the government's first of three reviews of overall economic activity for the July-September period. Price data in the GDP report showed inflation at a 1.6% annualized pace last quarter, below the Fed's 2% goal. There were also decreases in exports of petroleum and non-automative capital goods. Inventory investment is expected to have added as much 2 percentage points to GDP growth after slicing off 1.1 percentage points from output in second quarter. And Hurricane Michael, which plowed through the Florida Panhandle and Georgia earlier this month, could affect fourth-quarter GDP.

Consumer spending grew at an annual rate of 4% in the quarter, boosted by higher disposable incomes.

But some economists worry that the delayed effects of tariffs and higher interest rates will choke off growth starting next year.

Gross domestic product - the value of all goods and services produced in the USA - grew at a seasonally and inflation-adjusted annual rate of 3.5% from July through September, the Commerce Department said Friday. Household investment has fallen for three straight quarters. But headwinds are building. Imports increased in the third quarter after decreasing in the second.

"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.

Personal consumption grew by 4% during the third quarter, better than the 3.3% pace expected by economists and faster than the 3.8% pace of consumption seen during the second quarter. Those exports dropped in the third quarter and could continue to drop if the tariffs remain in place.

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