In Q3, the U.S economy (GDP growth) was more rapid than predicted, with inflation at a stable level and a hike in consumer spending.
United States gross domestic product grew by 3.5 percent (annual rate) in Q3. Dow Jones analyst average prediction was that the GDP growth would be 3.4 percent.
Consumer spending makes up over two thirds of economic activity in the United States, which grew 4 percent in Q3. Q3 consumer spending growth has not increased so much since Q4 2014. Consumer spending growth helped offset the decline in business spending (which fell by 7.9 percent). Business spending has not declined so rapidly since Q1 2016.
Despite Q3 GDP growth beating out analyst prediction, growth still declined when compared to Q2 2018. In Q2 (2018), GDP grew by 4.2 percent, which is 0.7 percent higher than Q3.
Compared to Q3,2017, the economy grew by 3%, which is an impressive growth. The Trump administrations growth target of 3% is on track. The overall economic growth for the United States is in its ninth year, which is the second longest growth spree on record. This economic growth in the U.S is impacted by a $1.5 trillion tax cut and higher government spending. This Q3 growth means that the Federal Reserve is likely to increase interest rates again in December… even though there is a rough financial market landscape brought around by stock market sell-off and increase in US Treasury yields.
The Trump administration is continuing with financial stimulus as a campaign to increase annual growth to 3% (sustainably).
The decrease in GDP growth is attributed to increasing interest rates, which are said to be slowing the economy. Along with China and the United States adding huge tariffs to billions of dollars worth of products. This is another factor which is slowing global economic growth.
The S&P 500 has taken a hit this month, with it falling by over 7 percent in October.
GDP Growth in Q3 2018
The Fed hiked interest rates in September for the third time in 2018. The higher interest rates are squeezing the housing market and causing many businesses to struggle, hence the decrease in business spending. Finding workers has become increasingly difficult and importing (manufacturing costs) are also increasing. Companies like as Ford and 3M are feeling higher import tariffs.
Most farmers sent their shipments to China before the tariffs were implemented at the start of July, which aided Q2 growth. Since China’s trade tariffs were implemented, soybean exports have dropped every month, which increases the trade deficit.
The exports of petroleum have also decreased since July. Domestic demand has increased, which increased the imports of retail goods and vehicles.
The trade gap has taken 1.78 percentage points off GDP growth in Q3. So it is clear that global trade tariffs are a challenge to the U.S economy. The trade gap hasn’t impacted the U.S economy as much as it did in Q3 since Q2 1985.
Much of the import hike represents businesses stockpiling inventory before US import duties from China come apparent. These imports are stunting GDP growth.
It is likely that some of the imported goods are being stored in warehouses and storage units, which is the stockpiling of inventory, this adds to U.S GDP.
Inventories hiked by $76.3 billion in Q3. In Q2, inventories decreased by $36.8 billion.