U.S. economic growth slows slightly in third quarter; outlook less upbeat

[rooster59]

U.S. economic growth slows slightly in third quarter; outlook less upbeat

By Lucia Mutikani

 

FILE PHOTO - A trailer is filled with soybeans at a farm in Buda, Illinois, U.S., July 6, 2018. REUTERS/Daniel Acker

 

WASHINGTON (Reuters) - The U.S. economy slowed less than expected in the third quarter as a tariff-related drop in soybean exports was partially offset by the strongest consumer spending in nearly four years, keeping growth on track to hit the Trump administration's 3 percent target this year.

 

Gross domestic product increased at a 3.5 percent annualized rate also supported by a surge in inventory investment and solid government spending, the Commerce Department said on Friday in its first estimate of third-quarter GDP growth.

 

While that was a slowdown from a 4.2 percent pace in the second quarter, it still exceeded the economy's growth potential, which economists put at about 2 percent. But there were red flags to the economic expansion that is now in its ninth year and the second longest on record.

 

Business spending stalled and residential investment declined for a third straight quarter, signs that the boost from a $1.5 trillion tax cut was fading and higher interest rates were hurting the housing market.

 

"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 New York.

 

Economists polled by Reuters had forecast GDP expanding at a 3.3 percent pace in the third quarter. The fiscal stimulus is part of measures adopted by President Donald Trump's administration to boost annual growth to 3 percent on a sustainable basis.

 

Yet the government is also locked in a bitter trade war with China as well as trade disputes with other trade partners and the last quarter's slowdown mostly reflected the impact of Beijing's retaliatory tariffs on U.S. exports, including soybeans.

 

Farmers front-loaded shipments to China before the tariffs took effect in early July, boosting second-quarter growth.

Since then, soybean exports have declined every month, increasing the trade deficit. There were also decreases in exports of petroleum and nonautomative capital goods.

 

Strong domestic demand, however, sucked in imports of consumer goods and motor vehicles. The widening trade gap chopped off 1.78 percentage points from GDP growth in the third quarter. That was the most since the second quarter of 1985 and reversed the 1.22 percentage points contribution in the April-June period.

 

The rebound in imports also reflected a rush by businesses to stockpile before U.S. import duties, mostly on Chinese goods, came into effect late in the third quarter.

 

Imports subtract from GDP growth. But some of the imports likely ended up in warehouses, adding to the stockpile of inventory, which contributed to GDP.

 

Inventories increased at a $76.3 billion rate after declining at a $36.8 billion pace in the second quarter.

 

As a result, inventory investment added 2.07 percentage points to GDP growth, the biggest contribution since the first quarter of 2015, after slicing off 1.1 percentage points from output in the second quarter.

 

ROBUST CONSUMER SPENDING

 

"Trade policy may also have driven the big swings in net exports and inventories," said Michael Feroli, an economist at JPMorgan in New York. "This dynamic could continue on into the fourth quarter."

 

Excluding the effects of trade and inventories, GDP grew at a 3.1 percent rate in the third quarter compared to a 4.0 percent pace in April-June.

 

The dollar briefly rose to a two-month high against a basket of currencies on the data.

 

Stocks on Wall Street were trading lower after Amazon <AMZN.O> gave a below par holiday-season sales forecast and Google-parent Alphabet <GOOGL.O> reported quarterly revenue that missed analysts' estimates. U.S. Treasury yields fell.

 

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.

 

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 GDP report showed the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 1.6 percent rate in the third quarter. The core PCE price index rose at a 2.1 percent pace in the April-June period.

 

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.0 percent rate in the third quarter. That was the fastest pace since the fourth quarter of 2014 and followed a 3.8 percent pace of increase in the second quarter.

 

Momentum is, however, expected to slow as wage growth remains gradual despite the unemployment rate being at a near 49-year low of 3.7 percent. In addition, the stock market turmoil is seen reducing household wealth.

 

Business spending on equipment increased at a 0.4 percent rate, the slowest in two years, after rising at a 4.6 percent pace in the second quarter. Businesses are struggling to find workers and the import tariffs are increasing manufacturing costs for companies, such as Caterpillar Inc <CAT.N>, 3M Co <MMM.N> and Ford Motor Co <F.N>.

 

"It appears most business leaders have become somewhat cautious about the future and are holding off committing to major investment plans," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

 

The housing market contracted at its steepest pace in more than a year in the third quarter, also dimming the economy's outlook.

 

 

-- © Copyright Reuters 2018-10-27

 

 

[lannarebirth]

Quote

In addition, the stock market turmoil is seen reducing household wealth.

 

And thusly, corporations have co-opted the citizenry to believe that their own prosperity, even their own financial security, is dependent on corporations getting whatever the hell they want.

[Boon Mee]

If the Fed would show some restraint in raising interest rates, the economy would not have slowed. 

[Silurian]

2 hours ago, rooster59 said:

Momentum is, however, expected to slow as wage growth remains gradual despite the unemployment rate being at a near 49-year low of 3.7 percent. In addition, the stock market turmoil is seen reducing household wealth.

 

When accounting for inflation (partially due to those wonderful Trumpian tariffs), wage growth has been stagnate (in some worker cases negative) for the past year. It is great that people have jobs now but you need to account for Americans that need to work at least two jobs to try to break even. The fiscally retarded Republican tax break for billionaires and corporations did absolutely nothing for the average American worker. Trump and his ilk are laughing all the way to the bank as they continue to rake in money at the expense of the average American. Shall we mention the record federal deficit under the current administration? 

 

Oh, and how is your stock investments from the beginning of 2018 to today? Ouch!

 

But never mind all that. Blind faith in the current administration is the normal of the Republican party no matter the cost.

 

Most Americans say their finances have not improved since the 2016 election

 

Quote

Only 38% of Americans say their finances have improved since the 2016 election, according to a study released Thursday by finance website Bankrate, while 17% say they have gotten worse, and 45% say they are about the same.

 

[sfokevin]

51 minutes ago, Boon Mee said:

If the Fed would show some restraint in raising interest rates, the economy would not have slowed. 

If the republicans had not goosed an already well performing economy with a unfunded tax cut the Fed would not have raised the rates...  

 

 

Btw the Fed chairman testified to this action 18 months ago when the were debating the tax cut...

 

Edited October 27, 2018 by sfokevin

[lannarebirth]

1 hour ago, Boon Mee said:

If the Fed would show some restraint in raising interest rates, the economy would not have slowed. 

The economy is up YoY. The Fed is 3 years behind schedule and wasted a lot of time and money on QE III.

[zaphod reborn]

1 hour ago, Boon Mee said:

If the Fed would show some restraint in raising interest rates, the economy would not have slowed. 

LOL!  Trump inherited a strong economy and that carried through his first year in office.  Trump has started a global recession because he has withdrawn the US as the global leader, started tarriff wars, torn up trade agreements and treaties without negotiating replacements, borrowed against future growth by enacting reckless tax cuts, run up a huge deficit, and injected massive uncertainty in geopolitics by pursuing his family's personal gain rather than working for the nation.  He is a failure and a total embarrassment to the Wharton School of Business.  The Fed is only trying to reach neutrality while the economy can withstand it, because they know a recession is imminent and will need room in the future to lower rates.

Edited October 27, 2018 by zaphod reborn

[Brunolem]

Give me a billion and I will easily grow my wealth by 350 millions!

 

It actually takes 3 dollars of new debt to increase the US GDP by 1 dollar!

 

So with trillion dollars yearly budget deficits, it is easy to grow the GDP...anyone can do it!

 

Meanwhile, the Great Golem of Greatness is screaming because the fed is increasing interest rates, which actually stand at...2%!

 

Yet, historical rates are more than double that...and the supposedly "greatest economy ever" cannot deal with 2% interest rates!

 

It cannot, simply because this fake economy (it's not only the news that are fake) is based on mountains of debt, and cannot support normal interest rates without collapsing.

 

Finally, the recently released data from Social Security show that 38% of Americans make less than 20,000 dollar a year, often by holding multiple jobs...and 50% make less than 30,000 dollar a year!

 

Rather strange in a "full employment" economy where salaries should be overheating, and not reach levels comparable to Thai salaries (much lower in fact once the cost of living is taken into account).

[Brunolem]

30 minutes ago, zaphod reborn said:

LOL!  Trump inherited a strong economy and that carried through his first year in office.  Trump has started a global recession because he has withdrawn the US as the global leader, started tarriff wars, torn up trade agreements and treaties without negotiating replacements, borrowed against future growth by enacting reckless tax cuts, run up a huge deficit, and injected massive uncertainty in geopolitics by pursuing his family's personal gain rather than working for the nation.  He is a failure and a total embarrassment to the Wharton School of Business.  The Fed is only trying to reach neutrality while the economy can withstand it, because they know a recession is imminent and will need room in the future to lower rates.

Trump inherited a mountain of debt, with his predecessor having doubled the national debt in 8 years !

More than 200 hundred years to reach 10 billions, and only 8 years to double that to 20 billions!

 

Meanwhile, his predecessor did absolutely nothing to clean the massively fraudulent banking system, instead protecting the banksters from criminal charges.

 

Having said that, Trump is no better, probably worse because he understands nothing to...anything!

 

How could someone who cannot read more than a few lines understand the complexities of the global economy, or anything else for that matter?

 

Trump is the proverbial elephant in a China shop...until now he has broken a few small objects, but wait until he becomes so confident in his abilities that he destroys the whole shop...which is going to happen before his term is over...

Edited October 27, 2018 by Brunolem

[Tug]

I hope I’m wrong but I see a major correction we have allready lost all the gains from the start of the year trump blew up the deficit with his tax scam he is out there playing the clown instead of leading not looking good at all

[Srikcir]

2 hours ago, Brunolem said:

How could someone who cannot read more than a few lines understand the complexities of the global economy

He relies on the Swamp of Wall Street in his cabinet.

[Srikcir]

8 hours ago, Silurian said:

partially due to those wonderful Trumpian tariffs

What tariffs?

Trump says his tariffs don't exist:

“We don’t have any tariffs,”

“We don’t even have tariffs. I’m using tariffs to negotiate.”

“Where do we have tariffs? We don’t have tariffs anywhere,”

https://www.thestar.com/news/world/2018/10/25/trump-says-his-tariffs-do-not-exist.html

If only Trump was a figment of our imagination.

[bristolboy]

On 10/27/2018 at 8:05 AM, Boon Mee said:

If the Fed would show some restraint in raising interest rates, the economy would not have slowed. 

And if the tax bill had not hugely increased the deficit, the economy would not have grown as quickly.

[bristolboy]

On 10/27/2018 at 9:20 AM, lannarebirth said:

The economy is up YoY. The Fed is 3 years behind schedule and wasted a lot of time and money on QE III.

The economy may be up but the level of inflation is still low. The Feds policy is to have long term inflation at 2 percent. But unlike the EU which sees 2 percent as an absolute limit, the Feds approach is symmetic. That is, sometime the rate can go above 2 percent and sometimes below as long as it averages out. Considering that inflation has mostly been well below 2 percent for years despite what most economists consider to be full employment, that argues that what looks like full employment isn't actually so. Better to have a little bit more inflation if that helps workers.

As for QE being worthless, it was the only recourse open to the Fed for stimulus given that the Republicans actually were pushing for austerity during the Great Recession!

 

 

[bristolboy]

On 10/27/2018 at 9:51 AM, Brunolem said:

Give me a billion and I will easily grow my wealth by 350 millions!

 

It actually takes 3 dollars of new debt to increase the US GDP by 1 dollar!

 

So with trillion dollars yearly budget deficits, it is easy to grow the GDP...anyone can do it!

 

Meanwhile, the Great Golem of Greatness is screaming because the fed is increasing interest rates, which actually stand at...2%!

 

Yet, historical rates are more than double that...and the supposedly "greatest economy ever" cannot deal with 2% interest rates!

 

It cannot, simply because this fake economy (it's not only the news that are fake) is based on mountains of debt, and cannot support normal interest rates without collapsing.

 

Finally, the recently released data from Social Security show that 38% of Americans make less than 20,000 dollar a year, often by holding multiple jobs...and 50% make less than 30,000 dollar a year!

 

Rather strange in a "full employment" economy where salaries should be overheating, and not reach levels comparable to Thai salaries (much lower in fact once the cost of living is taken into account).

So on the one hand you believe that interest rates are too low but on the other are unhappy with the fact that wages aren't as high as they should be? Seems to me that keeping interest rates low would one way to put upward pressure on wages. And given that inflation is low, why not?

[bristolboy]

On 10/27/2018 at 10:03 AM, Brunolem said:

Trump inherited a mountain of debt, with his predecessor having doubled the national debt in 8 years !

More than 200 hundred years to reach 10 billions, and only 8 years to double that to 20 billions!

 

Meanwhile, his predecessor did absolutely nothing to clean the massively fraudulent banking system, instead protecting the banksters from criminal charges.

 

Having said that, Trump is no better, probably worse because he understands nothing to...anything!

 

How could someone who cannot read more than a few lines understand the complexities of the global economy, or anything else for that matter?

 

Trump is the proverbial elephant in a China shop...until now he has broken a few small objects, but wait until he becomes so confident in his abilities that he destroys the whole shop...which is going to happen before his term is over...

Right wing amnesia is a remarkable phenomenon. You seem to forget that when Obama took office the global economy was teetering on the brink of a mass depression. As it was, the Great Recession was the most serious threat to the world economy since the Great Depression. Of course, Obama could have slashed expenditures the way Herbert Hoover did and the way the Republicans preferred. 

"Meanwhile, his predecessor did absolutely nothing to clean the massively fraudulent banking system, instead protecting the banksters from criminal charges."

The first part of this sentence of yours is massively false. Ever heard of Dodd-Frank? I guess not. But you know who has? Wall Street. And they and the Trump administration are doing their level best to defang it and let the financiers romp once more.

But you are correct that the Obama administration should have gone after bankers on various criminal charges. Not only would it have been the right thing to do, but it would have been the politically wise thing to do. That's what Obama incurred by appointing a Republican to be Treasury Secretary.

[Brunolem]

7 minutes ago, bristolboy said:

The economy may be up but the level of inflation is still low. The Feds policy is to have long term inflation at 2 percent. But unlike the EU which sees 2 percent as an absolute limit, the Feds approach is symmetic. That is, sometime the rate can go above 2 percent and sometimes below as long as it averages out. Considering that inflation has mostly been well below 2 percent for years despite what most economists consider to be full employment, that argues that what looks like full employment isn't actually so. Better to have a little bit more inflation if that helps workers.

 

 

 

The 2% inflation rate exists only in the computers of those who calculate it...not in the wallet of the average worker...

 

Meanwhile, it is ridiculous for the fed, yet not surprising considering the academics who populate it, to set interest rates according to a compass pointing on inflation and unemployment, two very unreliable, because highly massaged, indicators.

 

While the fed follows its compass, believing it is heading North, it is actually heading South, totally unaware of the massive bubbles (= assets inflation) that its policies are inflating.

 

The fed is always behind the curve, leaving interest rates too low for too long, then raising the rates at the end of the cycle right when the economy is ready for a recession, or worse.

 

As many observers say, there is no need for a fed, when the free market would do a much better job at setting the interest rates.

 

 

[bristolboy]

1 minute ago, Brunolem said:

The 2% inflation rate exists only in the computers of those who calculate it...not in the wallet of the average worker...

 

Meanwhile, it is ridiculous for the fed, yet not surprising considering the academics who populate it, to set interest rates according to a compass pointing on inflation and unemployment, two very unreliable, because highly massaged, indicators.

 

While the fed follows its compass, believing it is heading North, it is actually heading South, totally unaware of the massive bubbles (= assets inflation) that its policies are inflating.

 

The fed is always behind the curve, leaving interest rates too low for too long, then raising the rates at the end of the cycle right when the economy is ready for a recession, or worse.

 

As many observers say, there is no need for a fed, when the free market would do a much better job at setting the interest rates.

 

 

Anybody who actually knows about the dedication of the BLS to getting it right will rightly scorn your argument which roughly amounts to "don't bother me with your damned facts". 

As economists say, everyone has their own personal inflation rate. 

And the Great Depression cured most people of the belief that interest rates should be set purely by the market. In fact, while the Fed sets a floor, it doesn't set a ceiling.

[Brunolem]

17 minutes ago, bristolboy said:

So on the one hand you believe that interest rates are too low but on the other are unhappy with the fact that wages aren't as high as they should be? Seems to me that keeping interest rates low would one way to put upward pressure on wages. And given that inflation is low, why not?

Very low interest rates are like doping.

Once you get used to them, it is very difficult and painful to get rid of them.

 

Yet, they are a poison that ultimately kill the patient.

[bristolboy]

Just now, Brunolem said:

Very low interest rates are like doping.

Once you get used to them, it is very difficult and painful to get rid of them.

 

Yet, they are a poison that ultimately kill the patient.

And yet there was no shortage of takers for ultra low bonds. So on the one hand, you believe that the Feds shouldn't control interest rates but on the other ignore the fact that the free market gobbles up low interest rate bonds.

Interest rates are low because inflation is low. The government should sell T-bills for the lowest rate it can get. Or do you want government debt to rise faster?

[Brunolem]

1 minute ago, bristolboy said:

And yet there was no shortage of takers for ultra low bonds. 

There is "apparently" no shortage of buyers.

Yet, since the fed stopped buying the bonds hands over fists, who is buying?

Not China or Japan but, as shown on the Treasury stats, almost all the buying these days is done by "others", who happen to be mutual funds, who happen to be...banks!

And how do they pay for that?

Well, they create the money as usual.

 

There are quite a few interesting articles explaining how this works.

[Brunolem]

9 minutes ago, bristolboy said:

The government should sell T-bills for the lowest rate it can get. Or do you want government debt to rise faster?

The government debt, as well as other kinds of debt, rise faster BECAUSE of low interest rates!

 

Corporations are burying themselves in debt, 8 trillion so far, an absolute record, in order to buy back their own stocks...because it is so cheap!

 

Thus the markets keep on rising, not based on fundamentals, but on easy money, and by extension the inequalities increase with the rich getting richer without doing anything, while the average workers have to work 2 or 3 jobs in order to make ends meet!

 

[bristolboy]

4 minutes ago, Brunolem said:

There is "apparently" no shortage of buyers.

Yet, since the fed stopped buying the bonds hands over fists, who is buying?

Not China or Japan but, as shown on the Treasury stats, almost all the buying these days is done by "others", who happen to be mutual funds, who happen to be...banks!

And how do they pay for that?

Well, they create the money as usual.

 

There are quite a few interesting articles explaining how this works.

Well, banks create money when they lend it. Buying mutual funds is not lending. If in fact, that's what banks are doing. Some bank create and administer mutual funds programs for investors. But that's not the same thing as a bank forking over its own money. Got any data to back up your assertion that bank funds and mutual funds are an identity? Or even nearly so. And why would banks buy treasury bonds if they weren't competitive with other sources of income?