U.S. economy expands 3.5 pct in Q3 2018, growth likely to slow down slightly in Q4

The U.S. economy expanded at an annualized pace of 3.5 percent in the third quarter, showed the BEA’s second estimate. This is in line with the advanced estimate and market expectations. Beneath the headline, a slight downward revision to consumer spending was countered by an upward revision to business investment.

Real personal consumer spending continued to be solid but was downwardly revised to 3.6 percent from the initial estimate of 4 percent. This greatly reflected softer growth in durable goods. Business investment was upwardly revised to 2.5 percent from a 0.8 percent gain seen in the advance estimate. The revisions came in structures spending, which have fallen 1.7 percent and equipment outlays which rose 3.5 percent. Spending on intellectual property was downwardly revised to 4.3 percent.

Residential investment was also upwardly revised and is now estimated to have fallen 2.6 percent in the third quarter. Government spending was downwardly revised to 2.6 percent on softer spending at the state and local level. Exports were downwardly revised to a 4.4 percent fall, while imports were essentially the same at 9.2 percent jump. That signifies that net trade subtracted 1.9 percentage points from growth, a shift which was greatly countered by a larger contribution from inventory building.

Corporate profits for the third quarter rose 14.3 percent. This is the second consecutive quarter of double-digit gains in profits, which rose 10.3 percent year-on-year.

“Looking ahead, monthly indicators point to a slower, but still solid, pace of growth in the fourth quarter (between 2 - 2 ½ percent). Slower growth will largely reflect a moderation in consumer spending, as the boost from tax cuts that lifted spending through the middle of the year fades”, stated TD Economics in a research report.

Meanwhile, the healthy growth in corporate profits implies businesses have the capacity to keep investing, if they continue to be confident about future demand. With several measures of business sentiment starting to show strain from the ongoing ratcheting up of import tariffs and retaliation on U.S. exports, the question is whether concerns will translate into revised capital expenditure plans. The fall in oil prices adds another negative to the outlook for investment in the oil patch, said TD Economics.

“So far, the Fed seems likely to remain on track to gradually normalize monetary policy. With inflation at target and the economy running hot, we anticipate that the Fed will raise rates in December, but there is downside risk to our expectation for hikes in 2019”, added TD Economics.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 138.054. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex