U.s. growth remains strong, but the trade tensions weigh

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"The effects of expansionary fiscal policy also showed up in government spending, which shot up 3.3% in the third quarter, the strongest sequential rate of growth in more than two years".

Economists estimate the widening trade gap chopped off nearly 2 percentage points from GDP growth in the third quarter, which would reverse the 1.22 percentage point contribution in the April-June period.

Excluding the volatile trade and inventories components of GDP, final sales to domestic purchasers increased at a 3.1% pace, slowing from 4%.

The 3.5 percent annualized gain in gross domestic product, following 4.2 percent, marked the best back-to-back quarters since 2014, according to Friday's Commerce Department report.

"The big swings in trade and inventories between the second and third quarters are likely at least partially due to changes in activity associated with trade policy", said Daniel Silver, an economist at JPMorgan in NY. Analysts said the Federal Reserve probably remains on track for a December interest-rate increase, its fourth of 2018, though the GDP details suggest the economy isn't shifting into a permanently higher gear.

While a solid labor market and gradually rising wages are buoying consumers, investors took little comfort from GDP: The S&P 500 stock index plummeted on Friday, entering a correction following reports showing the growth engines of Amazon.com Inc. and Alphabet Inc. sputtered last quarter.

This was met with real consumer spending growing at a 4 percent annual rate in the third quarter, compared to 2.6 percent during the prior four quarters. That was up from a rate of 3.8% recorded in the previous quarter.

Government spending rose at a pace of 3.3% during the third quarter, the fastest since the first quarter of 2016.

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This is published unedited from the PTI feed. Shares of Caterpillar Inc., an economic bellwether, tumbled this week after the maker of mining and construction equipment said manufacturing costs were higher due to rising material and freight costs.

The drag on GDP was the largest negative contribution to GDP growth for trade in 33 years - trade subtracted 1.91 points from GDP in the second quarter of 1985.

"In the big picture, what we're trying to ascertain is: is fiscal stimulus transitory or will it help sustain economic growth longer term?"

In the end, simultaneous spikes in investment and consumer spending could balance each other out, leaving the price of most goods largely unchanged. The rate was 2.0 percent for the first quarter of this year and 2.3 percent for all of 2017.

The central bank has raised rates three times this year and signalled it will raise rates one more time this year and expect to raise rates three times in 2019. "Specifically, overall fixed investment spending contracted 0.3%". Investment spending in new residences has now fallen for three quarters (nine months) in a row and the decline seems to be picking up.

The report said China should adjust credit structure to ensure the money flowing to the real economy, and also should control the monetary aggregate as well as maintaining sufficient liquidity.

However, the drag from trade was probably offset by faster inventory accumulation by businesses stockpiling before USA import duties, on mostly in Chinese goods, came into effect.