"The effects of expansionary fiscal policy also showed up in government spending, which shot up 3.3% in the third quarter, the strongest sequential rate of growth in more than two years".
The US economy grew at an annualised rate of 3.5% in the third quarter of the year, official figures have shown.
The US' economy grew at an annual rate of 3.5 per cent in the third quarter, down slightly from the 4.2 per cent growth rate registered in the previous quarter, the government said on Friday.
The second GDP estimate for the third quarter (July-September) is scheduled to be released on November 28.
"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.
Third quarter GDP topped expectations and shows the US economy continues to grow at a strong rate. Consumer spending was a key factor, rising 4 percent in the quarter, but a big drop in exports and "a steep slowdown in business spending raised concerns about whether the strength in the expansion is sustainable", Bloomberg News said.
Earlier this week, The Wall Street Journal wrote, "A stark pickup in government spending, particularly in defense, has helped fuel a broad acceleration in USA economic growth in the past year and a half", with the sharp uptick in outlays associated with the budget deal earlier this year accounting for almost half of the economic growth during that time. It excludes the more volatile trade and inventories components of GDP.
"The American consumer continues to be the hero of the economy, with the 3.5 percent GDP beating estimates, supported by a healthy increase in disposable personal income", Robert Frick, corporate economist at Navy Federal Credit Union, told ConsumerAffairs. Higher interest rates are pressuring the housing market, businesses are struggling to find workers and the import tariffs are increasing manufacturing costs for companies, such as Caterpillar Inc, 3M Co and Ford Motor Co.
This is published unedited from the PTI feed.
Solid third-quarter growth is expected to keep the Federal Reserve on course to raise interest rates again in December, despite a recent tightening in financial market conditions brought about by a stock market sell-off and a rise in U.S. Treasury yields.
One factor stands out: Government spending is playing a major role in the current economic expansion.
Former White House economist Jared Bernstein said the strong showing reflects the fact that so many people are in the job market.
However, strong demand in the USA brought in large numbers of imported motor vehicles and consumer goods.
A 3.5% growth in the 3rd quarter is the second strongest in the past four years, after the 2nd quarter of 2018.
However, the drag from trade was probably offset by faster inventory accumulation by businesses stockpiling before US import duties, on mostly in Chinese goods, came into effect. That was the most since the second quarter of 1985 and reversed the 1.22 percentage point contribution in the April-June period. Imports subtract from GDP growth. Investment spending in new residences has now fallen for three quarters (nine months) in a row and the decline seems to be picking up.