US GDP grows above-forecast 3.5% on consumption, inventories

[WASHINGTON] The US economy expanded at a 3.5 percent pace in the third quarter as consumers opened their wallets, businesses restocked inventories and governments boosted spending, marking the strongest back-to-back quarters of growth since 2014.

The annualized rate of gains in gross domestic product compared with the 3.3 per cent median estimate in a Bloomberg survey and followed a 4.2 per cent advance in the prior three months, according to Friday's report from the Commerce Department.

Consumer spending, which accounts for about 70 per cent of the economy, unexpectedly accelerated to a 4 per cent increase - the best since 2014 - while the 0.8 per cent gain in non-residential business investment was the weakest in almost two years.

In two volatile categories, inventories provided the biggest contribution since early 2015, while the drag from trade was the largest in 33 years.

Government spending rose by the most since 2016.

The data indicate a robust job market and lower taxes continued to propel demand among consumers and companies, giving President Donald Trump an opportunity to showcase his policies heading into the midterm congressional elections.

At the same time,tariff-related bottlenecks and the trade war with China are headwinds for the nation's second-longest economic expansion on record.

Investors have become less sanguine on the outlook amid the latest run of US company earnings reports, though stocks regained some ground on Thursday. Shares of Caterpillar Inc, an economic bellwether, tumbled this week after the maker of mining and construction equipment said manufacturing costs were higher due to rising material and freight costs.

More broadly, the International Monetary Fund earlier this month cut its global growth forecast for the first time in two years, blaming escalating trade tensions and stresses in emerging markets.

World GDP would fall further should Mr Trump follow through on all his trade threats, including global duties on cars, the IMF said.

Excluding the volatile trade and inventories components of GDP, final sales to domestic purchasers increased at a 3.1 per cent pace, slowing from 4 percent.

Economists monitor this measure for a better sense of underlying demand. Excluding government spending, the measure of private demand also rose 3.1 per cent.

Consumer spending compared with projections for a 3.3 per cent advance, and followed the second quarter's 3.8 per cent gain. It contributed 2.69 percentage points to growth.

Purchases rose across most major categories including motor vehicles, recreational goods, food and clothing, in part reflecting the support from steady hiring and the lowest unemployment rate in about five decades.

BLOOMBERG