US economy grows at fastest back-to-back pace in 4 years, boosted by solid consumer spending

  • The US economy grew faster than expected in the third quarter, boosted by consumer spending and business inventories.
  • Gross domestic product, the value of every good and service produced within the country, rose at an annualized rate of 3.5%, making for the economy’s best back-to-back quarters in four years.
  • Trade reportedly dragged on US growth by its most in 33 years amid the tariffs imposed on goods from China and other countries.
  • The housing market was a drag on the economy for a third straight quarter as declining affordability slowed sales.

The US economy grew at a faster rate than expected in the July-September quarter, according to the Commerce Department’s advance report released Friday.

Gross domestic product, the value of every good and service produced within the country, increased at an annualized rate of 3.5%; economists had forecast 3.3% growth, according to estimates compiled by Bloomberg. With that number, the US economy has its strongest back-to-back quarters of growth in four years.

A healthy job market – with the lowest unemployment rate in 49 years – coupled with strong consumer confidence to support consumer spending, the biggest driver of the US economy. Personal consumption increased at a 4% rate, the strongest since 2014.

Businesses also made a strong contribution to the economy as they stockpiled inventories, though this category tends to be volatile from quarter to quarter.

“It’s possible that this was a byproduct of a rush to push goods into the US before tariffs hit, but that is unclear,” Jim Baird, the chief investment officer for Plante Moran Financial Advisor, said in a note. “Regardless of the reason, it represents a sizable asterisk for an otherwise strong quarterly growth result and creates a probable headwind to growth in the coming quarters as those inventories are trimmed back.”

An expected area of weakness was housing investment, which fell 4%, its third straight quarter in decline. Much of the data on residential investment during the third quarter was weaker than expected. The volume of existing-home sales peaked last November and fell every month in the latest quarter amid affordability constraints and tight inventory.

US exports were another drag on the economy. According to Bloomberg, trade’s drag on the economy was its most in 33 years amid the dispute with China and other countries.

Companies outside the US had stockpiled goods ahead of the implementation of tariffs, boosting second-quarter GDP by more than 1 percentage point. But in August, for example, the US goods deficit with China jumped to a one-month record of $US38.6 billion without seasonal adjustments.

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