U.S. gross domestic product (GDP) growth cooled in the third quarter of 2018, according to new data from the Bureau of Economic Analysis (BEA). Specifically, real GDP, which measures the value of the production of goods and services in America adjusted for price changes (inflation), increased at an annual rate of 3.5 percent in Q3. That is down from Q2’s 4.2 percent pace of expansion but consistent with the recent seasonal pattern and still the 2nd-best quarter for economic activity since 2014. A major factor behind Q3’s healthy pace of GDP growth was strong consumer spending, as personal consumption expenditures rose at the quickest rate in almost four years.
The personal saving rate, though, fell to 6.4 percent in the third quarter and credit card usage increased, suggesting that faster wage growth will be needed for consumer spending to stay elevated. A sharp buildup in inventories also contributed to Q3 GDP growth, but this is a volatile component that could act as a drag in subsequent quarters. Elsewhere, nonresidential fixed investment, which includes business spending on equipment, structures, and intellectual property, rose in Q3, but the gain was significantly smaller than what occurred in Q2. That provides more evidence that any economic boost related to recent tax reform is already starting to fade. Another detractor from output in the third quarter was the widening foreign trade deficit, as exports fell by 3.5 percent and imports jumped by 9.1 percent. Overall, though, this was a solid GDP report, and about as good as one could hope for this late in the economic cycle. It is also worth remembering that this is only the first estimate of Q3 GDP growth, meaning that large revisions are possible over the next few months.
Sources: Econoday, U.S. DoC, Twitter, WSJ, Bloomberg, FRBSL
Post author: Charles Couch