U.S. Economic Growth – Solid with Caveats - October 31, 2018

Gross Domestic Product, or GDP, expanded at an annual rate of 3.5% in the third quarter per the U.S. BEA.

  • Growth came in just above expectations.

  • Combined with Q2’s 4.2% rate, it’s the fastest pace since 2014 (BEA).

  • It’s the first read on Q3 activity; it’s subject to two more revisions.

Key highlights—

  • Continued strength in consumer spending – 70% of GDP.

  • Soft business expenditures

Investor’s Corner

Strong consumer confidence and tax cuts are supporting consumer spending, offsetting any headwinds from higher gasoline prices.

The fly in the ointment – following strength in recent quarters, businesses cut back on capital spending.

Business spending can be lumpy. In light of trade frictions, however, it bears watching, especially as the tax cuts were heavily geared to incentivize capital outlays.

At issue, the uncertainty created by trade frictions may be dampening the appetite for capital spending.

Shorter term, the Conference Board’s Leading Index and the Fed’s Beige Book suggest the economy will continue to perform well through yearend.

Positives heading into 2019 – the fruits of deregulation and fiscal stimulus.

Concerns – slowing global growth and the potential consequences of increased trade tensions, assuming a Chinese trade deal is not reached.