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The Commerce Department released Friday its first estimate of economic growth in the third quarter, providing the latest snapshot of the US economy.
Numbers
• US gross domestic product grew 3.5% annualized in the third quarter, up from 4.2% in the second quarter.
• Consumer spending increased 4%. This category represents about 70% of the economic output and was strong this quarter and the latter.
• Inventories have contributed significantly to overall growth. Always volatile and difficult to predict, inventories were a major factor of slowdown in the second quarter. As companies rebuilt their inventories in the last quarter, inventory additions contributed more than 2 percentage points to overall growth.
To take away
Analysts were expecting a slight slowdown in the economy after the exceptionally strong second-quarter data, and the economy is expected to grow by 3% or more this year, the first since this year.
Consumers remain the foundation of the economy. "What's most remarkable is the strength of consumer spending," said Michelle Meyer, director of US economics at Bank of America Merrill Lynch. "The consumer has grown at the beginning of this year and tax cuts have fueled this trend."
Stimulus measures in the form of tax cuts and increased government spending are largely fueling growth, but that will not last forever. "The underlying data tells us that fiscal stimulus is likely to be stimulated," said Michael Gapen, chief economist at Barclays.
The political effect
President Trump did not hesitate to ask credit for the strength of the economy, even though many trends, such as falling unemployment, were firmly anchored under his predecessor, Barack Obama. Nevertheless, with less than two weeks of mid-term legislative elections, Republicans will likely use the strong growth of recent quarters during the election campaign to back up their claims that they were good stewards of the economy.
One of Trump's main economic developments, namely the increase in tariffs on Chinese imports worth $ 250 billion, is another asset. The president also raised tariffs on imports from other countries, including products such as steel, aluminum and solar panels. Until now, there is no reason to believe that the commercial policies of the administration have greatly reduced growth.
However, trading has a way to make itself felt. An increase in soybean purchases by buyers looking to take action before Chinese repressive tariffs take effect, helped boost growth by about half a percentage point in the second quarter, according to economists. This blip should reverse in the second and third quarters. But as time passes, the headwinds of tariffs will rise.
Spotlight on the Fed
Federal Reserve policymakers have gradually raised interest rates to prevent overheating and prevent inflation.
That displeased President Trump, who criticized Fed Chairman Jerome Powell on Tuesday. "Every time we do something big, it raises interest rates," Mr. Trump said.
Fed officials, who do not report to the president, consider themselves above politics. Mr. Trump's attack is very unusual and the latest figures may give him more reason to unload Mr. Powell. The Fed is expected to raise rates once again this year, in December and several times in 2019. Expect Mr. Trump to continue to complain and the Fed and Mr. Powell to stay the course.
Jobs and Markets
It may seem odd that the Standard & Poor's 500 equity index fell by around 7% in October at market close on Thursday, as the economy continued to grow at an impressive pace.
In fact, both are related, but not as you might think. A stronger economy tends to drive up interest rates, putting downward pressure on equities. The yield on the 10-year Treasury Note has increased, making riskier stocks less attractive to investors than safer bonds. This also increases the costs of borrowing for businesses and consumers.
The recent decline in Wall Street, which began in early October, came too late to affect the climate or spending of the third quarter, which covers the months of July, August and September.
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