US Economy Grows By 3.5% In Third Quarter

US economy grew at strong 3.5 per cent rate in Q3

"That suggests some of this stimulus won't last, it's not going to turn into higher-trend growth through the channel of investment and greater capacity and greater potential growth".

The broadest measure of US stocks, the S&P 500, which measures the prices of 500 of the largest corporations in the United States, fell 1.7%, ending the day below where it started the year in January.

Trump has promised to achieve annual growth rates of 3 per cent, in part through a sweeping tax overhaul he signed into law last December that lowers levies on USA corporations and - to a lesser extent - many ordinary Americans. The Conference Board's measure of consumer confidence rose in September and retail sales grew 4.7 percent last month from a year earlier.

"There will come a day of reckoning for the economy after the tax cut monies are all gone, but for today Washington really has something to crow about", said Chris Rupkey, chief economist at MUFG in NY. That hasn't happened since 2005.

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In its release, the BEA said, "The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, state and local government spending, federal government spending, and nonresidential fixed investment that were partly offset by negative contributions from exports and residential fixed investment".

The US Commerce Department said strong consumer and government spending helped to bolster the economy. Consumer spending probably got a boost from the individual tax cuts, but business investment - the most important factor associated with the Republican tax plan and the one that was supposed to drive a big increase in capital investment and, eventually, wages - is showing no signs of a boom. "Another boost to real GDP growth in the third quarter came from stock-building".

On the other hand, the Trump administration is optimistic, particularly as the report showed inflation remains contained: Excluding food and energy, the Fed's preferred price index also rose at a 1.6 percent rate.

Shipments were front loaded by US farmers to China prior to the tariffs taking effect during early July, increasing growth in the second quarter. The figure beat expectations of a 3.3 per cent rate of growth.

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The Fed raised rates in September for the third time this year and removed a reference to monetary policy remaining "accommodative" from its policy statement. The report was one of the last major economic indicators before Election Day (there will be one more jobs report released November 2).

Solid domestic demand and some front-loading of imports ahead of a January rise in levies on Chinese goods may further widen the trade gap. "A downturn in exports" as well as a drop in business investment are responsible for part of the decline from the second quarter, the Commerce Department noted.

"Next year, as the boost from fiscal stimulus is fading and the lagged impact of higher interest rates begins to weigh more heavily, we expect GDP growth to slow below its 2% potential pace", Michael Pearce, senior USA economist at Capital Economics, said in a note.

That's still strong, though lower than the 4.2% clip the economy grew during the second quarter.

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Housing continued to be a drag, falling for a third straight quarter.

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