GDP grows 3.5% in consumer vigor, but investment decreases
GDP grows 3.5% in consumer vigor, but investment decreases
WASHINGTON: The economy advanced in the third quarter, boosted by robust consumer and government spending, although Friday's report included warning signs that the business sector faces turbulence that could delay expansion in the coming months.
The gross domestic product, a measure of the amount that the US. UU Produce goods and services, grew at an annual rate of 3.5% from July to September to $ 18.7 billion, adjusted for inflation, the department of commerce said on Friday. This came after a growth rate of 4.2% in the second quarter and is further evidence that growth has improved from levels below 2% that prevailed during much of the US expansion. UU Since 2009.
However, the signaling of the concern about the emerging perspective, the shares fell on Friday, with the Dow Jones Industrial Average losing 1.19% and the Standard & Poor 500 stock index falling 1.73%.
Corporate earnings for the third quarter have been largely positive, as about 80% of the S & P 500 companies reported earnings that exceeded Wall Street expectations. But the performance of sales has been more varied, with more than a third of the firms so far missing revenue projections. It is a trend that amplifies the concern of some investors that the economic growth of the United States could have reached its peak earlier this year.
Consumer spending is being fueled by abundant jobs. The unemployment rate fell to its lowest level in September since 1969., which means more income in the pockets of the home, and tax cuts They have added to the purchasing power. That appeared in the report in the form of additional expenses on everything from restaurants to recreational goods.
"I am 75 years old and this is one of the best moments I've seen in a long, long time," said Thomas Thompson, a retired engineer at a power plant in Plymouth, Wisconsin. He and his wife bought a new Cadillac Escalade SUV this summer and recently began a two-week vacation in Washington, DC, and in the Blue Ridge Mountains, thanks in part to strong gains in the economy and the stock market in the past. years.
Government spending is also being loosed in the economy, after having previously contracted in the expansion due to the agreements between the Obama administration and the Republicans in Congress to curb the budget deficits that soared after the financial crisis of 2007- 2009
Defense disbursements grew at an annual rate of 4.6% in the third quarter, adjusted for inflation, thanks in part to A bipartisan budget agreement reached in February. to increase government spending this year and next by almost $ 300 billion over the limits set in a 2011 law. That included $ 165 billion more for the military. During the six months between April and September, defense spending increased at its fastest rate since 2009.
Despite these growth drivers, many analysts believe that the expansion will slow down in the coming months. The Federal Reserve, for example, projects a growth rate of 2.5% in 2019, 2% in 2020 and 1.8% in 2021.
A Ford Motor worker assembles a Ford F150 truck at the Ford Dearborn truck plant on September 27.
Photo:
Bill Pugliano / Getty Images
The GDP report pointed to pockets of unexpected weakness, particularly in the business sector. Business investment grew at a modest annual rate of 0.8%. That included a contraction in investment in business structures, which had been operating strongly for months, thanks to spending on oil and gas platforms driven by rising energy prices.
Republicans reduced the corporate tax rate from 35% to 21%, with the hope of stimulating a business investment boom that raises the potential of the economy to grow for years. Business investment data may be volatile from one quarter to another, but the weak number in the latest report suggests that other factors, including uncertainty about the outlook for commercial rates, may be beginning to influence business decisions to spend on new equipment and plants.
The Trump administration has imposed tariffs on $ 250 billion in goods imported from China. It has also placed tariffs in sectors that include steel Y solar panelsY US business partners have retaliated..
The recreational craft industry, which faces retaliatory tariffs ranging from 10% to 25% in exports to various countries, is an example of a sector caught in cross currents.
Correct Craft Inc., a recreational boat manufacturer based in Orlando, Florida, is "tightening on both ends," Chief Executive Bill Yeargin said in an interview. In addition to tariffs on exports that pose "significant obstacles" to its international business, tariffs on components imported from China have provided coverage to domestic suppliers to increase prices, he said.
"Fortunately, the domestic market has been very strong," Yeargin said.
Doug Smoker, CEO of New Paris, Indiana, boat manufacturer Smoker Craft Inc., echoed that "rates are definitely affecting us."
"We are a little nervous" due to the increase in the cost of the components, said Smoker, adding that "he expects the economy to remain in the same situation as now and that we do not get out of the political turmoil and keep rolling".
President Trump has proposed to close the large US trade deficits. UU., But a growing trade deficit was an obstacle to growth in the third quarter. At the beginning of the year, trade boosted growth as farmers accelerated soy sales to preempt anticipated tariffs on US exports to China.
Sectors sensitive to interest rates also face some tension as The Fed raises rates in the short term.. The construction of houses has been contracted. In five of the last six quarters. The pace of car purchases also slowed in the last three months.
The Federal Reserve is expected to raise short-term rates again in December and then until 2019. This is intended to prevent the economy from overheating and stir up inflation or financial excesses that can lead to bubbles in asset prices. The rate increases have provoked Mr. Trump's anger, who says The central bank is undermining its efforts to further stimulate growth.
What is behind the growth pill?
Consumer spending and government is driving the economy.
PIB
The growth of the gross domestic product of EE. UU It has recovered in recent months, after failing to achieve faster growth during much of the expansion.
Consumer spending
Household spending is always a significant contributor to growth and in recent months has recorded some of the largest gains from the expansion. The tax cuts could be helping.
Investment
Under the surface, the investment shows divergent tendencies ...
Investment
Investment of companies
Business investment has been driven by spending on structures, especially in oil and gas platforms driven by the increase in energy prices. But that reversed in the third quarter, keeping overall investment levels low.
Investment
Residential investment
A slowdown in housing has made residential investment one of the largest reductions in gross domestic product.
Investment
Change in Inventories
Changes in the companies' inventory are among the most volatile components of GDP and have little impact on overall production trends.
Net exports
Soybean sales in the United States above tariffs provided a big boost to growth in the second quarter, but it was a temporary gain.
Government expenses
Cuts in government spending were an obstacle to growth during most of the expansion. Now the government is providing a boost, especially military spending.
Source: Department of Commerce.
The stock market is another wild card for the economy. The increase in stock prices produces something that economists call a "wealth effect", which means that when people see their investment portfolios increase, they spend more money because they feel richer.
The effect of wealth probably caused more consumer spending as stock prices rose, but it could affect spending if stocks continue to fall, as they have done in recent weeks.
The latest report on the economy included an indication that the Fed might not need to raise rates significantly, which could help stocks. The inflation measure preferred by the central bank, a price index that tracks the costs of goods and services purchased by consumers, increased at an annual rate of 1.6% in the third quarter, less than the 2% target of the Federal Reserve.
Fed officials believe that inflation will continue to rise because the economy is running strong, but if price measures remain modest, officials may decide they do not need to raise rates significantly.
A Fed report released earlier this week said companies were still optimistic about the economy's trajectory, but indicated concern that rates would continue to drive up costs.
Many companies have passed on price increases to customers, or expect to do so, the Fed said. in his latest summary of anecdotal information on regional economic conditions known as the beige book. But in some cases, companies can not.
Corrections and Amplifications
Final sales to domestic private buyers, which eliminate trade, inventories and government spending, increased at a seasonally adjusted annual rate of 3.1% in the third quarter. An earlier version of this article incorrectly called the measure "final sales of the national product" and gave a rate of 1.4%. (October 26, 2018)
Write to Harriet Torry in harriet.torry@wsj.com
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