US economy grew at brisk 3.5 percent annual rate last quarter, but what happens next?

In this Jan. 30, 2018, file photo a rubber tire gantry moves into position to transfer shipping containers at the Georgia Ports Authority's Port of Savannah in Savannah, Ga. On Wednesday, Nov. 28, the Commerce Department issued the final estimate of how the U.S. economy performed in the July-September quarter. | Associated Press photo by Stephen B. Morton, St. George News

DISTRICT OF COLUMBIA (AP) — The U.S. economy expanded at a solid 3.5 percent annual rate in the July-September quarter, led by lower but still strong consumer spending and more business investment than previously estimated.

The Commerce Department’s figure for gross domestic product, released Wednesday, was the same as its first estimate last month. GDP is the broadest measure of the nation’s output of goods and services and covers everything from homebuilding to haircuts. Greater corporate investment offset downward revisions in spending by state and local governments and consumers.

The third quarter figure follows a robust expansion of 4.2 percent in the April-June quarter. Six months of healthy growth have put the U.S. economy on track to expand in 2018 at its fastest pace in 13 years. Still, economists forecast that growth will slow in the fourth quarter and decelerate further next year.

Borrowing costs are headed higher as the Federal Reserve raises short-term interest rates. That has lifted mortgage rates and weighed on home and auto sales. The Trump administration’s trade fights have also raised uncertainty for many companies and may cause them to delay investments. And the boost to consumer spending from last year’s tax cuts is likely to fade by next year.

The Trump administration has imposed tariffs on about half the goods that the United States imports from China and has threatened to impose tariffs on the rest. That would raise prices on billions of dollars of consumer goods, including smartphones, tablets, toys and shoes.

“A trade war remains the biggest downside risk to near-term growth,” said Gus Faucher, chief economist at PNC.

Economists at JPMorgan Chase forecast that growth will slow to 2.5 percent in the fourth quarter and 2.2 percent in the first three months of 2019.

Even so, growth is on pace to top 3 percent this year for the first time since 2005. Consumer confidence is near 18-year highs, and the unemployment rate is at a nearly five-decade low of 3.7 percent.

Consumers lifted their spending 3.6 percent at an annual rate in the third quarter, a solid pace but down from the government’s first estimate of 4 percent. State and local governments spent just 2 percent, down from the previous estimate of 3.2 percent.

Those declines were offset by greater business investment: Companies spent more on equipment and did not cut back nearly as much on their spending on buildings as initially estimated. Businesses also spent more to stockpile goods on store shelves and in warehouses.

The inventory building occurred as businesses stepped up their efforts to import more goods before January, when U.S. tariffs on $200 billion of imports from China are expected to jump to 25 percent, from 10 percent.

Imports surged 9.2 percent in the third quarter as companies sought to get ahead of the increased tariffs. Trump has also threatened to slap import taxes on car.

Exports fell 4.4 percent as more U.S. goods are facing retaliatory tariffs abroad. Exports of U.S. soybeans had jumped in the second quarter in advance of a large tariff increase imposed by China, a key market for U.S. soybeans. Those exports fell back in the third quarter.

The drop in exports and increase in imports in the third quarter meant that international trade cut into growth by the most since 1985.

Federal Reserve Chairman Jerome Powell said on Wednesday that he’s pleased with the state of the U.S. economy but cautions that some forms of corporate debt have reached risky levels. At the same time, Powell says the financial system and markets appear far sturdier than they did before the 2008 crisis.

Powell said in a speech Wednesday to the Economic Club of New York that the Fed is monitoring potential vulnerabilities in the banking system to ensure its continued stability.

Written by CHRISTOPHER RUGABER and MARTIN CRUTSINGER, The Associated Press.

Email: news@stgnews.com

Twitter: @STGnews

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 

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18 Comments

  • jpff November 28, 2018 at 3:43 pm

    It has been good to see the economy surge better than it has for the past 13 years. I will not cause a stir by suggesting that recent or past politics have played significantly in our recovery. The truth is, we will once again have a recession when our economy resets itself. Prices of property is once again becoming unattainable to the average American, and there is a good chance many will lose homes through no fault of their own when the economy resets itself.
    For now, let’s enjoy and save to protect ourselves from what is likely to happen within two or three years. Getting out of high interest credit card debts would be very helpful when the mortgage has to be paid when our earning power may go down. Those who overextend their credit will most likely be the first to fall. I believe we still have some time to adjust and prepare.

    • Comment November 28, 2018 at 9:35 pm

      If it all goes bad within the next 2 to 6 years we’ll just blame Obama.

  • commonsense November 28, 2018 at 8:38 pm

    The previous administration stated that a 2% rise in GDP would be the new norm. It is almost double that and it’s no mere coincidence. Punitive business regulation, unfair trade agreement and high corporate taxes restricted growth. Having a business man run the biggest business in the world is a nice change. Today the Dow rose over 600 points to finish above 25,000 and full employment blesses the lives of all Americans.

    • Chris November 28, 2018 at 9:20 pm

      You really did not understand the article, or economics in general. The third quarter growth DECLINED from an annual rate of 4.2% in the second quarter to 3.5%. It is further projected to decline to 2.5% in the fourth quarter and 2.2% in the first quarter of next year. 2% annual growth is still the new norm. It would be nice if we had a successful businessman as president. The orange blob in the White House has failed at every business he ever engaged in.

      • Comment November 28, 2018 at 9:33 pm

        Good luck getting thru to Mr. commonsense. Never seen it. His mantra is “DA LIBRULZ DUNNIT!!!”.

  • Kilroywashere November 28, 2018 at 9:29 pm

    Here’s what many investors fail to see. We are in another technological shift at this moment in time. With the advent of AI and robots, like the one from Boston dynamics that can do backflip somersaults, we are on the verge of a massive worldwide economic tsunami of wealth creation. If we can keep the geo political landscape from going off the deep end, the next few years will blow away the previous shift that occurred with the rise of e-commerce in the mid to late 90s. There will always be corrections, but you ain’t seen nothing yet! If there is a recession ahead, it will come from geo-political folly. Otherwise the bull will rage, and the China shop isn’t big enough to contain him.

    • Comment November 28, 2018 at 9:47 pm

      cylons?

      • Kilroywashere November 28, 2018 at 11:38 pm

        Ahhhhhh, a Battlestar fan. Lol. Let’s hope the robots dream of sheep. Danger Will Robinson, danger Will Robinson.

  • utahdiablo November 28, 2018 at 9:29 pm

    $21.7 Trillion in US National debt and you ask what happens next?….Oh Boy, glad your in a “Happy Place” because when the crash comes, and it will, as sure as the Sun rises each day, then the “Real World” will set in…with all the trade tariffs going on with China these days, who do you think owns the most US debt? …one clue, CHINA!….and we allow China, as well as everyone else, to buy US real estate and businesses?….What will happen next…hey thanks for the good laugh tonight

    • Kilroywashere November 28, 2018 at 11:43 pm

      UtahD. people freaked out at billion dollar deficits in the last Century. Trillions? Doesn’t matter. If we go down so does the Federal Reserve and the 10+ or so families that own it. So no worries. There is no Gold or Silver backing our currency, or any other world currency of note.. IN GOD WE TRUST. Dont buy into the grand illusion, rather. keep the faith. “It is all belief” Quine.

  • Redbud November 29, 2018 at 3:51 am

    Our economy is doing very well indeed, thanks to Trump! MAGA!

    • iceplant November 29, 2018 at 8:43 am

      Once again… you cannot credit Drumpf with the current economy. You can credit him with the stimulus.
      The current economy started its upswing well before Obama left office. AND, dear leader’s first fiscal year didn’t start until he had been in office for 9 months. You ought to do a little brushing up on your economics.

      • Redbud November 29, 2018 at 1:21 pm

        Trump absolutely can be credited for the improved economy, in fact he is the reason for it. You are just bitter because he’s actually doing good for this country, and in typical libtard fashion, you just have to hate. Trump 2020!

  • commonsense November 29, 2018 at 8:13 am

    Chris, as I average 4.2 and 3.5 I get 3.85 so far this year. The GDP was 1.5 at the end of the Obama years. It looks like production has more than doubled under the current President, who BTW is a billionaire who takes no salary and financed his own campaign. Most of his businesses have been immensely successful. I like where we are as a country as measured by all economic indicators.
    Disparaging remarks about him won’t diminish his accomplishments.

    • iceplant November 29, 2018 at 9:22 am

      Such rubbish. This reads like a propaganda piece straight from Hannity and Fox. Obama lives in your head, rent-free.

    • Comment November 29, 2018 at 9:50 am

      You should’ve been an economist instead of a “physician”…

    • bikeandfish November 29, 2018 at 10:16 am

      First of all, its the third quarter numbers so that requires an average of: Q1 of 2.2% , Q2 of 4.2% and Q3 of 3.5%. That currently averages to 3.3 % which is biased by the two strongest quarters of most years (Q2 and Q3). Historically Q4 is only slightly better than Q1. Hard to predict GDP with a month left but if history holds 2018 could barely hold onto 3% and just as likely drop to 2% range. This is especially true when comparing to Obama as his GDP are all final revisions which haven’t happened yet for 2018.

      Take 2017. Remember how jubilent Howard was last year before final revisions came in? “Growth has averaged well over 3 percent in Trump’s first three quarters, all before the recent tax reform.”. Oops, we never saw him revise his claims despite 2017 averaging well below his claims. 2017 GDP growth averaged 2.5% after final inventory with a 2.7% average for the quarters he claimed were Trump’s. Those numbers are quite mundane given Trump’s claim that year that we had just experienced “one of the greatest [economic revivals] in the history of our country.”

      I’ll take every bit of economic growth we can get and give thanks to those responsible. Trump’s economy is definitely better than Obama’s last couple years. But right now my retirement portfolio is worse off than a year ago, we haven’t actually experienced much in wage growth (when compared to inflation) and we are likely to owe taxes instead of seeing the returns Trump falsely claimed the middle class would. Couple that with the slowing housing market and 2019 isn’t looking as cheery as many claim.

    • bikeandfish November 29, 2018 at 12:29 pm

      And why do you keep repeating lies about Trump’s campaign funding?

      In 2016 his campaign “Donald J Trump for President” raised more than $330 million from outside sources. How is $330 million in outside funding an example of your claim that “he financed his own campaign”? And those numbers don’t reflect the other groups like PACs that definitely influence a campaign.

      https://www.opensecrets.org/pres16/candidate?id=N00023864

      And no other president has started campaigning and fundraising for re-election as early as Trump. He filed immediately and began fundraising after winning the 2016 election. He uses these monies for his ongoing personal rallies, also something a sitting president hasn’t done so soon. He currently has $30+ million dollars in campaign funds raised from outside sources.

      https://www.publicintegrity.org/2018/07/15/21970/donald-trump-continues-build-2020-re-election-war-chest

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