The US statistics report strong Q3 economic growth of 3.5 percent. Unlike in Europe, the Americans on principle release annualised figures, meaning growth extrapolated for the year as a whole. Compared to the strong second quarter, when the increase in gross domestic product was 4.2 percent, Q3 growth was only slightly slower. The main factor here was private consumer spending, which customarily sets the pace and this time even picked up further. Consumer spending alone therefore accounts for slightly more than two thirds of the growth. We expect that the current and coming quarters will see a similar pattern – or so buoyant consumer sentiment and the historically high employment levels would suggest.
In our opinion, the stagnation in investments in plant and machinery gives less cause for concern as these rose appreciably in the prior six consecutive quarters. Corporate investment activities would seem to have remained robust judging above all by the renewed sharp climb in investments in computer programmes and in “R&D”. One factor that could more likely be considered a shortcoming would be the comparably clear contribution increases in inventory have made to growth. However, these had been visibly depleted in prior quarters so that we regard the sudden increase to mark a correction that was hardly surprising. We also consider the decrease in goods exports to be a reaction to a one-time effect in Q2, when the pending punitive tariffs in the trade conflict with China sparked a clear rise in exports.
For the Fed, given the latest data on US macroeconomic trends, there has hardly been cause to depart from their path of moderately tightening monetary policy. Without doubt, what is more exciting is just how the overall good economic conditions will impact on the mid-term elections on 6 November in favour of the Republican politicians running for Congress. At present the Republicans have a full majority, meaning they hold sway in both the Senate and the House of Representatives. As a result, President Trump has been able to fulfil his election promises, such as the extensive tax cuts. The latest data on the US economy have also shown that in Q3 countless investments were made at the lower local authority level. It is doubtless no coincidence that this has happened just before the mid-term elections and it is intended to pull votes. However, since the country is deeply divided over other issues, such as migration and the trade dispute with Europe and China, it may well be that the economic prosperity is not duly honoured by the electorate next week.