One factor stands out: Government spending is playing a major role in the current economic expansion. Inventory investment is expected to have added as much 2 percentage points to GDP growth after slicing off 1.1 percentage points from output in second quarter.
The broadest measure of USA 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. "This report shows the fiscal stimulus has a transitory response".
Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former Fed economist, said the GDP report is consistent with the central bank's forecast. Business spending on equipment increased at a 0.4 per cent rate, the slowest in two years, after rising at a 4.6 per cent pace in the second quarter. World GDP would fall further should Trump follow through on all his trade threats, including global duties on cars, the International Monetary Fund said. During the past 4 quarters, GDP has grown 3.0 percent. Economists monitor this measure for a better sense of underlying demand.
In the end, simultaneous spikes in investment and consumer spending could balance each other out, leaving the price of most goods largely unchanged. That was the most since the second quarter of 1985 and reversed the 1.22 percentage points contribution in the April-June period. Imports rose at a 9.1% rate, as Americans stepped up purchases of foreign goods.
The economy is underpinned by a $1.5 trillion tax cut and increased government spending. While the president was hoping for more, the economy hasn't reached that annual growth rate since 2005.
"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.
The economy has been expanding in the 2 percent range in the past few years, but growth spiked in the second quarter, boosted by consumer spending and exports.
Yet amid President Donald Trump's trade war, nonresidential business investment rose at a 0.8 percent pace, the weakest since 2016 and down from 8.7 percent in the prior quarter. Supply-siders will be disappointed to see business fixed investment essentially stalling out after a robust first half, further casting into doubt the notion that corporate tax reforms could incentivize capital deepening, which could lift the long-run growth potential of the economy. But because housing contributes little to overall GDP, it should only have a modest drag on growth, the economists said. Recent reports indicate the industry is slowing amid higher prices and rising mortgage rates, as well as a lack of affordable listings. Spending on structures fell at a 7.9% rate in the third quarter. 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. Ian Shepherdson, chief economist at Pantheon Macroeconomics, summed it up this way: "In one line: Strong GDP growth hides soft capex and massive trade deterioration".