Washington: The US economy grew faster than originally reported in the July-September period, even amid the unresolved trade war with China, and prices remain tame, according to new government data released Wednesday.
Higher exports and residential investment helped boost growth to a 2.1 percent annual rate from the 1.9 percent estimated last month, according to the more complete data on the third quarter, the Commerce Department said.
But economists note the apparent good news on the economy is tempered by some concerning elements.
Business investment, which has been hit hard by President Donald Trump’s trade war with China, declined sharply but by less than originally reported, dropping 2.7 percent rather than three percent in the first estimate and that smaller decline helped growth.
Meanwhile, businesses building inventories of product added nearly 0.2 points to the GDP calculation, according to the revised data.
While that could reflect companies stockpiling ahead of tariffs, it could also reflect slowing consumption.
“In short, slightly stronger than before, but mainly because of inventories. That data continue to show growth slowing, but not dramatically,” said economist Jim O’Sullivan of High Frequency Economics.
The consensus among economists predicted no revision to the GDP result, but some correctly forecast the upward revision which puts the third quarter on track to best the two percent growth in the second quarter, after the 3.1 percent expansion in the first three months of the year.
Consumption, the traditional driver of growth, accounting for 70 percent of US GDP, remained strong, advancing by 2.9 percent, with a strong gain in spending on durable goods such as cars or appliances, according to the data.
Investment in real estate market jumped 5.1 percent, the strongest in two years, boosted by low interest rates.
Exports, which fell 5.7 percent at the height of the trade war in the second quarter, recovered slightly in the latest quarter, rising 0.9 percent — two-tenths stronger than originally reported.
Imports also were stronger than previously estimated, rising by 0.8 percent.
The latest reading on GDP growth “indicates the economy is not about to fall off a cliff,” said Gregory Daco of Oxford Economics.
- More slowing ahead? –
“However, the lingering global industrial slump, persistent trade policy uncertainty and cooling income growth all point to weaker activity in the coming months,” he said in an analysis.
Looking ahead to the fourth quarter, the Commerce Department in a separate report said durable goods orders in October also were far better than expected, rising 0.6 percent rather than the sharp decline economists had forecast.
Without the volatile transportation sector, orders also rose by 0.6 percent.
The 40-day strike at General Motors impacted orders for autos, but that was offset by strong orders for Boeing aircraft.
This is despite a cloud hanging over the company amid new revelations about trouble in testing of its 777X on top of the delays in returning the 737 MAX to the skies following two deadly crashes.
But economists say they are suspicious of the data, which they expect to be revised.
And, O’Sullivan noted: “The manufacturing sector is disproportionately exposed to weakening in foreign demand.”
In a separate report, a closely-watched government inflation gauge confirmed Wednesday that US price pressures remain tame in October.
The so-called PCE price index — the Federal Reserve’s preferred measure — showed annual inflation remained a low 1.3 percent in October, the same as in September, according to the Commerce Department report.
Excluding volatile food and energy prices, the “core” PCE inflation index slowed slightly to 1.6 percent from 1.7 percent in the prior month, also well below the Fed’s two percent inflation goal, which was finally achieved last year for the first time since the end of the global financial crisis.
The Fed has lowered overnight interest rates three times this year as insurance against the risks of trade tensions, something it was able to do in the absence of inflation.