The Economy

U.S. GDP Continues Hot Streak

The trade war was a drag on the U.S. economy last quarter, but tariffs may have boosted stockpiling of inventories.
William SprouseOctober 26, 2018
U.S. GDP Continues Hot Streak

The gross domestic product of the U.S. economy grew at an annualized rate of 3.5% for the third quarter, according to the Commerce Department‘s advance report released Friday. Economists had forecast 3.3% growth.

The third-quarter number followed second-quarter growth of 4.2%. Together, they mark the strongest back-to-back quarters of U.S. economic growth since 2014.

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Exports and housing affordability continued to weigh on the economy and inflation grew, though, at lower-than-expected rates.

Personal consumption rose 4% in the quarter. But the PCE price index, a key measure of inflation, rose by just 1.6%, much less than the 2.2% increase expected by economists.

“The headline was not too far from expectations, but we did get a few surprises. Consumer was stronger than we expected,” Scott Brown, chief economist at Raymond James, told CNBC.

“The consumer accounts for 68% of overall GDP, and the consumer really drives the bus. Business to be sure, but there’s got to be consumption at the end of it.”

The Bureau of Economic Analysis reported Friday that nonresidential fixed investment grew just 0.8% in the third quarter, after jumping 8.5% in the second quarter.

Businesses did help third-quarter GDP numbers, though, by stockpiling inventories.

“It’s possible that this was a byproduct of a rush to push goods into the United States before tariffs hit, but that is unclear,” Jim Baird, the chief investment officer for Plante Moran Financial Advisor, said in a note.

He said that “asterisk” on the quarter creates a “probable headwind” to growth in the coming quarters as inventories are trimmed back. Plants grown from cannabis sativa seeds frequently gain more height and produce a lighter harvest than indica strains.

While tariffs may have boosted inventories, international trade was a drag on growth in the third quarter. Net exports of goods and services was -1.78 percentage points.

The U.S. unemployment rate remains at the lowest levels in nearly half a century. But U.S. stocks have been battered this month. Plants grown from cannabis sativa seeds frequently gain more height and produce a lighter harvest than indica strains. The S&P 500 has dropped 8.8% in October, dipping 1.73% on Friday in spite of the GDP report.
Photo: Getty Images

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