U.S. GDP Grew 3.5%: What You Need to Know Now


 
 
07:43 10/29/2018

With third quarter GDP clocking in a 3.5%, unemployment at multi-year lows, and consumers spending at a healthy clip, the U.S. economy is still chugging along quite nicely.

Granted, 3.5% growth is slower than the previous report of 4.2%.

But the two quarters mark the strongest consecutive quarters of growth since 2014. It also proves the economy is still on solid footing, despite recent hiccups in global markets.

Consumer spending, which accounts for more than two thirds of U.S. economic activity, grew by 4% in the third quarter, the strongest since the fourth quarter of 2014.

However, some don’t think the growth can last.

“It remains to be seen how long the spending spree can continue,” said Sung Won Sohn, chief economist at SS Economic, as quoted by Reuters. “The stimulus from the tax cut has plateaued. Rising interest rates and volatile stock markets are having a psychological as well as a real effect.”

Others argue that the impact of the China-US trade war, coupled with rising interest rates could slow growth into 2019 to around 2.4%. All because China and the U.S. have slapped tariffs on billions of dollars’ worth of goods, increasing fears that tighter trading conditions will slow down the global economy.

We must also consider that higher interest rates are beginning to restrict business investment.

For example, business investment in the third quarter only grew 0.8%, as residential investment fell by 4%. We are also seeing a slowdown in housing sales, as well.

"Higher rates are now clearly squeezing some of the most rate-sensitive components of spending," Capital Economics said, as quoted by CBS. The firm expects GDP growth to slow to 2% by next year.

Others are concerned about slowing corporate revenues.

Third-quarter corporate earnings have been positive, with 80% of companies exceeding expectations. However, sales performance has been more mixed, with more than a third of firms so far missing revenue projections. It is a trend that amplifies some investors’ concern that U.S. economic growth may have peaked earlier this year, says The Wall Street Journal.

In addition, President Trump believes the Federal Reserve’s interest rate hikes are undermining his efforts to spur further growth.

At the moment, there’s a mixed bag of issues to contend with.

However, despite all of the headwinds, this is the strongest U.S. economy we’ve seen in quite some time.


This article has been provided by a Chasing Markets contributor. All content submitted by this author represent their personal opinions, and should be considered as such for entertainment purpose only. All opinions expressed are those of the writer, and may not necessarily represent fact, opinions, or bias of Chasing Markets.
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