The US economy slowed in the third quarter as previously reported, but the pace was likely strong enough to keep growth on track to hit the Trump administration’s 3 percent target this year, even as momentum appears to have moderated further early in the fourth quarter.
Gross domestic product increased at a 3.5 percent annualized rate, the Commerce Department said Wednesday in its second estimate of third-quarter GDP growth. That was unchanged from its estimate in October, and well above the economy’s growth potential, which economists estimate to be about 2 percent.
The economy grew at a 4.2 percent pace in the second quarter. While businesses accumulated inventory at a faster pace and spent more on equipment than initially thought in the third quarter, that was offset by downward revisions to consumer spending and exports.
Growth is being driven by the White House’s $1.5 trillion tax cut package, which has given consumer spending a jolt and supported business investment. The fiscal stimulus is part of measures adopted by President Trump’s administration to boost annual growth to 3 percent on a sustainable basis.
The government also reported on Wednesday that after-tax corporate profits increased at a 3.3 percent rate last quarter after rising at a 2.1 percent pace in the second quarter.
An alternative measure of economic growth, gross domestic income (GDI), increased at a rate of 4.0 percent in the third quarter, quickening from the second quarter’s 0.9 percent pace.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 3.8 percent rate in the July-to-September period, up from a 2.5 percent growth pace in the second quarter.
But dark clouds are gathering over the economic expansion that is now in its ninth year and the second-longest on record. The goods trade deficit widened further in October, pressured by declining exports of soybeans, capital goods and automobiles, the Commerce Department said in another report Wednesday.
Data released last week showed business spending on equipment weakening in October and it could remain tepid with Brent crude oil prices slumping by more than 30 percent from a four-year high above $86 in early October. Lower oil prices tend to hurt investment in the energy sector because of reduced profits.
The housing market is softening because of higher interest rates. In addition, General Motors said Monday it would cut thousands from its North American workforce, slash production and eliminate some slow-selling car models, which could have ripple effects on the domestic economy.
Solid third-quarter growth is expected to keep the Federal Reserve on course to raise interest rates in December for the fourth time this year, despite an escalation of criticism from Trump that tighter monetary policy is slowing the economy.
The second estimate for the July-to-September quarter GDP growth was in line with economists’ expectations. Financial markets were little moved by the data.
