U.S. GDP revised down to 3.4% in the third quarter

The U.S. economic growth for the third quarter was seen being revised downward by a small margin, official data showed last week. Still, the economy was seen rising at a solid pace in the three months ending September 2018. The data underlined that the economic momentum might be difficult to maintain, heading into the final quarter of the year.

The gross domestic product was seen expanding at a pace of 34% on a seasonally and inflation-adjusted basis in the periods of July through September, data from the Commerce Department showed on Friday last week.

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This was a downward revision from the second and first estimates which showed that the economy expanded at a pace of 3.5%. The median estimates also showed that there would be no change to the GDP figures.

The third quarter GDP expansion at 3.4% comes following the second quarter’s growth rate of 4.2%. This was the best pace of growth in a six month period as the economy outpaced the modest growth rate of 2% on an annualized basis since the middle of 2009.

Despite the downside revision, the data suggests that it does not alter the outlook for the economy. The U.S. economy has been chugging along at a steady pace since early 2015. However, there are underlying signs that the economy might have cooled since the middle of this year.

Forward-looking indicators suggest that the U.S. economic growth could further slow to 2.7% in the fourth quarter of the year. The general consensus among the central bank’s policy making committee indicates that growth in 2019 could average about 2.3% and slow to 2.0% by 2020.

This comes as various sectors that contribute to the economy such as trade, manufacturing and housing are showing signs of headwinds. However, for the moment, these headwinds are being offset by robust consumer spending.

In a separate report, data showed that consumer spending increased at a slower pace during the third quarter. This came as exports were seen declining a bit more sharply than expected. Consumer spending, which accounts for more than two-thirds of the U.S. economic output expanded at a pace of 3.5% on an annualized basis in the third quarter.

This was again a slower pace of increase compared to the previous estimates of 3.6%. The personal expenditure was seen slowing from the second quarter. One of the major contributors was a build-up in inventories. This contributed to a 2.3% increase to the overall GDP output of 3.4%.

The data was seen to beat the median estimates. A higher level of inventory build-up is seen as a sign that future production could be curbed if consumer demand starts to fall.

The GDP report also showed that business investment in the fixed non-residential spending sector rose at a pace of 2.5%. This marked an unchanged print compared to the previous estimates given earlier. Business investment grew at a strong pace at the start of the year as businesses responded positively to the tax cuts.

However, the smaller gains in the summer months start to indicate that the effects of the tax cuts are starting to fade.

Home building and improvements declined 3.6% compared to the previous estimates of a 2.6% decline. This sector marked a decline for three consecutive quarters so far. The declines were attributed to higher interest rates which seem to be a challenge for the housing markets.

Exports fell 4.9% which was also bigger than the initial estimates of a 4.4% decline. Imports, on the other hand, rose 9.3% which was higher than the previous estimates. As a result, trade was seen posting a slight drag on the economy and is likely to become a tailwind in the coming quarters.

Corporate profits after tax adjustments for inventory valuation rose 3.5% in the third quarter. This was an improved figure compared to the 3.3% increase seen previously.