Industryweek 28095 Economy Growth 1

US Economy Grew at Unrevised 3.5% Pace in Q3

Nov. 28, 2018
The results capped the best back-to-back quarters since 2014.

The U.S. economy remained on a solid footing in the third quarter, matching previously reported results, as stronger business investment and a bigger boost from inventories cushioned the worst trade drag since 1984.

Gross domestic product grew at an unrevised 3.5% annualized rate, Commerce Department data showed Wednesday, in line with the median forecast in a Bloomberg survey. Household spending, which accounts for about 70% of the economy, grew 3.6%, revised from 4%, on weaker durable goods purchases.

Key Insights

The biggest change from the prior report on GDP, the value of all goods and services produced in the nation, came from stronger business investment, while most other categories were in line with earlier readings. Nonresidential fixed investment -- which includes spending on equipment, structures and intellectual property - grew 2.5%, revised from a 0.8% gain.

Economists are monitoring such spending because, along with consumer purchases, it was a main driver of growth in the first half.

Combined with a 4.2% pace of GDP growth in the April to June period, the results capped the best back-to-back quarters since 2014.

At the same time, growth is projected to moderate this quarter. Risks to the outlook include an escalating trade war with China, cooling global demand and rising borrowing costs, while the boost from President Donald Trump’s tax cuts is expected to wane next year.

The report also provided a first glimpse of some key data: Corporate pretax earnings rose 10.3% from a year earlier, the most in six years, after a 7.3% advance. Gross domestic income rose 4%, the most since 2014.

More Detail

Equipment spending was revised up to a 3.5% rise from a 0.4% gain, while investment in structures showed a 1.7% drop compared with a previously reported decline of 7.9%.

Net exports subtracted 1.91 percentage point from growth, while inventories added provided a 2.27 point boost.

Stripping out the volatile components of trade and inventories, so-called final sales to domestic purchasers climbed at an unrevised 3.1% pace. Housing still posted a third consecutive drag on GDP growth and reaffirmed that the industry has entered a broad slowdown. Residential investment fell 2.6%, compared with an initially reported contraction of 4%.

Inflation rose an unrevised 1.7%. The Federal Reserve’s goal is 2% based on its preferred gauge tracking personal consumption expenditures. Excluding food and energy, the Fed’s preferred price index advanced 1.5%, revised from 1.6%. Government spending increased at a 2.6% rate, revised from 3.3%. That added 0.44 point to growth.

This GDP report is the second of three estimates for the quarter; the third is due in December as more data become available.

By Shobhana Chandra

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