The U.S. economy grew at a sustained annual rate of 3.5% in the last quarter
WASHINGTON — The U.S. economy grew at a solid 3.5% annual rate in the July-September quarter, driven by weaker but still strong consumer spending and stronger-than-expected business investment.
The Commerce Department’s gross domestic product figure, released Wednesday, was the same as its first estimate last month. GDP is the broadest measure of the country’s production of goods and services and covers everything from building houses to cutting hair. Higher business investment offset downward revisions to state and local government and consumer spending.
The third-quarter figure follows a solid 4.2% expansion in the April-June quarter. Six months of healthy growth put the U.S. economy on track to expand in 2018 at its fastest pace in 13 years. Still, economists expect growth to slow in the fourth quarter and slow further next year.
Borrowing costs rise as the Federal Reserve raises short-term interest rates. This pushed up mortgage rates and weighed on home and auto sales. The Trump administration’s trade struggles have also heightened uncertainty for many companies and could cause them to delay investments. And the boost given to consumer spending by last year’s tax cuts is expected to fade by next year.
The Trump administration has imposed tariffs on about half of the goods the United States imports from China and has threatened to impose tariffs on the rest. It would raise the prices of billions of dollars of consumer goods, including smartphones, tablets, toys and shoes.
“A trade war remains the biggest downside risk to near-term growth,” said Gus Faucher, chief economist at PNC.
JPMorgan Chase economists expect growth to slow to 2.5% in the fourth quarter and 2.2% in the first three months of 2019.
Still, growth is on track to exceed 3% this year for the first time since 2005. Consumer confidence is near an 18-year high and the unemployment rate is at its lowest level in almost five decades, at 3.7%.
Consumers increased spending by 3.6% year on year in the third quarter, a steady pace but down from the government’s first estimate of 4%. State and local governments spent just 2%, down from the previous estimate of 3.2%.
These declines were offset by an increase in business investment: businesses spent more on equipment and did not reduce spending on buildings as much as originally expected. Businesses also spent more to stock goods on store shelves and in warehouses.
The stockpiling came as companies stepped up efforts to import more goods ahead of January, when U.S. tariffs on $200 billion in imports from China are set to rise from 10% to 25%.
Imports jumped 9.2% in the third quarter as companies sought to get ahead of tariff increases. Trump has also threatened to impose import taxes on cars.
Exports fell 4.4% as more U.S. goods face retaliatory tariffs abroad. US soybean exports had surged in the second quarter before a sharp tariff increase imposed by China, a key market for US soybeans. These exports fell in the third quarter.
Falling exports and rising imports in the third quarter mean international trade has slowed growth the most since 1985.