The Commerce Department released its initial estimate of third-quarter economic growth on Friday, providing the latest snapshot of the American economy.þþUnited States gross domestic product rose at an annualized rate of 3.5 percent in the quarter, compared with 4.2 percent in the second quarter.þþ• Consumer spending increased by 4 percent. The category accounts for roughly 70 percent of economic output, and was strong in both the third and second quarters.þþRestocking of shelves and warehouses by businesses contributed substantially to growth: Always volatile and hard to predict, inventory additions contributed more than 2 percentage points to overall growth.þþThe TakeawayþþAnalysts had expected the economy to slow somewhat after a blockbustersecond quarter, and the economy remains on track to grow 3 percent or more this year, the first time it has achieved that pace since 2005.þþOn the surface, the numbers appear very strong, but the underlying picture is more mixed.þþ“Clearly a strong headline but the details are a little less robust,” said Michelle Meyer, who leads United States economics at Bank of America Merrill Lynch. “There was very little increase in equipment investment and a decline in residential investment. And there was a particularly large increase in inventories, which is not sustainable.”þþMs. Meyer said the jump in inventories could pose some downside risk to her estimate of 3 percent growth in the fourth quarter.þþFor now, consumers remain the bedrock of the economy. “What’s most notable is the strength in consumer spending,” Ms. Meye said. “The consumer had momentum coming into the year and the tax cuts further fueled that.”þþBusiness investment barely contributed to the quarter’s results.þþMichael Gapen, chief United States economist at Barclays, said he was less optimistic about business spending in the future. Since surging in the first quarter after the big cut in corporate tax rates, businesses appear to have scaled back investment. “If you’re banking on strong G.D.P. growth, you need business investment,” Mr. Gapen said.þþPresident Trump has not been shy about claiming credit for the strong economy, even though many trends, like falling unemployment, were firmly in place under his predecessor, Barack Obama. Still, with less than two weeks to go before the midterm congressional elections, the strong growth in the second and third quarters Republicans will probably use the strong growth in the second and third quarter to buttress campaign claims that they have been good stewards of the economy.þþAnother wild card is the effect from one of Mr. Trump’s leading economic moves, increasing tariffs on $250 billion in Chinese imports. The president has also raised tariffs on imports from elsewhere, including on products like steel, aluminum and solar panels. So far, there is little evidence that the administration’s trade policies have reduced growth much.þþA surge in soybean purchases by buyers seeking to act before retaliatory Chinese tariffs kicked in helped lift growth by about half a percentage point in the second quarter, economists say. But that uptick reversed itself in the third quarter as overall exports dropped and imports increased.þþSpotlight on the FedþþPolicymakers at the Federal Reserve have been gradually raising interest rates, in order to prevent the economy from overheating and to head off inflation.þþThat has irked President Trump, who criticized the chairman of the Fed, Jerome Powell, on Tuesday. “Every time we do something great, he raises the interest rates,” Mr. Trump said.þþOfficials at the Fed, who do not report to the president, consider themselves above politics. Mr. Trump’s attack is highly unusual, and the latest numbers could give him more reason to unload on Mr. Powell. The Fed is expected to raise rates one more time this year, in December, and several times in 2019. In light of Friday’s numbers, expect Mr. Trump to continue complaining and the Fed, and Mr. Powell, to stay the course.þþJobs and the MarketsþþIt might seem odd that the Standard & Poor’s 500-stock index has fallen about 7 percent in October as of the close of trading on Thursday even as the economy has continued to grow at an impressive pace.þþIn fact, the two are linked, but not in the way you might think. A stronger economy tends to push up interest rates, which in turn puts downward pressure on stocks. The yield on the 10-year Treasury note has been climbing, which makes riskier stocks less appealing to investors than safer bonds. It also increases borrowing costs for businesses and consumers.þþWall Street’s recent decline, which began in early October, came too late to affect sentiment or spending in the third quarter, which covers July, August and September.
Source: NY Times
