US economy sees 3.5 percent growth in third quarter

QUARTER YEAR-OVER-YEAR JOINING US RIGHT NOW JON HILSENRATH GLOBAL ECONOMICS EDITOR GETTING THE NUMBER MOMENTARILY WE KNOW YOUR OFTEN FOCUSED ON CONSUMER WHAT CONSUMER IS SHOWING WITHIN GDP NUMBER THE 3.5% THE NUMBER 3.5% BETTER THAN EXPECTED EXPECTING 3.3% WE ARE WATCHING MARKETS FOR ANY REACTION, YOUR EXPECTATIONS AND REACTION TO 3.5% NUMBER JON. REPORTER: THAT IS A STRONG NUMBER WHAT I WANTED TO DO IS BREAK THIS DOWN A LITTLE BIT, AND SEE WHERE IT COMES FROM, I THINK TRADE WAS PROBABLY A DRAG FOR THE QUARTER. I THINK WE HAVE TO LOOK CAREFULLY IN ADDITION TO CONSUMER AT GOVERNMENT, THERE HAS BEEN AS WE REPORTED, TODAY IN "THE WALL STREET JOURNAL," THERE HAS BEEN A BIG PICKUP IN MILITARY SPENDING, GOVERNMENT SPENDING, IS CONTRIBUTING A LOT TO GROWTH RIGHT NOW. >> UP 4 -- CONSUMER SPENDING DOING WELL WITHIN THIS UP 4%. >> CORRECT 4% IN THIS THE THIRD QUARTER STRONGEST RATE OF GROWTH ALMOST FOUR YEARS ON CONSUMER SIDE. >> STREET LOOKING UP 3.3 ON THAT AS WELL A BIG BEAT. >> BIG BEAT. REPORTER: MAKES SENSE YOU'VE GOT UNEMPLOYMENT RATE THAT IS DOWN UNDER 4% LOWEST LEVEL SINCE 1950S YOU ALSO HAVE TAX CUTS MAKING THEIR WAY THROUGH THE SYSTEM, SO WE SHOULD BE SEEING STRONG CONSUMER SPENDING RIGHT NOW, WE ALSO HAVE TO LOOK AT WHAT IS GOING ON, ON THE BUSINESS INVESTMENT SIDE, YOU KNOW FOR THIS GROWTH TO BE SUSTAINABLE IN THE LONG RUN WE NEED MORE BUSINESS INVESTMENT, AND I WANT TO SEE HOW THAT BREAKS DOWN AS WELL. DAGEN: INVESTMENT BY COMPANIES WEAK NONRESIDENTIAL FIXED INVESTMENT COMMERCIAL EQUIPMENT. >> SOFTWARE ROWS -- IN THIRD ARTERY AFTER 8.7% RATE SECOND QUARTER 11 1/2 IN THE FIRST. >> INFLATION ALSO LIGHT HERE CORE PCE UP 1.6% QUARTER OVER QUARTER, STREET LOOKING FOR UP 1.8, SO THERE IS NOT RUNAWAY INFLATION STORY LOOKS YOU XHUJS STRONG DAGEN POINTS OUTS -- VOTE. WEAK. DAGEN: ONE MORE THING PRIVATE VENEZUELA ELIZABETH WAS TALKING ABOUT, PRIVATE INVENTORIES ADDED MORE THAN 2 PERCENTAGE POINTS, TO THE THIRD QUARTER GROWTH RATE REVERSING THAT TREND THAT YOU SAW IN THE SECOND QUARTER WHEN COMPANIES WERE HYDRAULIC DOWN STOCKPILES AHEAD OF THE TARIFFS. >> THAT IS SORT OF OFFSET QUARTER TO QUARTER WITH THE WIDENING TRADE DEFICIT, IT SEEMS TO ME THAT CONSUMER NEWS HERE IS VERY IMPORTANT, BECAUSE THE FOURTH QUARTER IS ALL ABOUT HOLIDAY SALES ALL ABOUT CONSUMER SPENDING THE FACT THAT THAT HELD UP ACTUALLY BEAT BY A WIDE MARGIN I THINK UP FOR WITH LESS PESSIMISM IF YOU WANT TO LOOK AT IT THAT WAY ABOUT FOURTH QUARTER. >> NO REVISIONS SECOND QUARTER SECOND QUARTER STRONG 4.2% THAT IS NOT BEING REVISED DOWNWARD, SO THAT STAYS IN PLACE WITH BETTER-THAN-EXPECTED INITIAL OR ADVANCED READING FIRST READING THIRD QUARTER 3 1/2% JON. REPORTER: I SAY A FEW THINGS BASED ON BREAKDOWN YOU HAVE GIVEN ME ONE LET'S TALK ABOUT THAT, INFLATION NUMBER THE MARKET HAS BEEN VERY CONCERNED AND PRESIDENT HAS BEEN VERY CONCERNED ABOUT THE FED CONTINUING TO RAISE INTEREST RATES, GOING INTO NEXT YEAR. YOU KNOW THE INFLATION NUMBERS HAVE COME IN KIND OF SOFT OVER THE LAST COUPLE OF MONTHS, AND I THINK THE FED IS GOING TO HAVE TO START PAYING ATTENTION TO THAT FACTOR THAT INTO WHERE THEY WANT TO GO ON INTEREST RATE INCREASES. ON INVENTORY PIECE THAT YOU TALKED ABOUT, THAT IS A VOLATILE NUMBER DOESN'T FUNDAMENTALLY HAVE MUCH TO DO WITH ECONOMIC GROWTH, IN THE LONG RUN. SO THE FACT THAT IT ADDED A LOT TO GROWTH IN THIRD QUARTER I THINK BECOMES A POTENTIAL DRAG ON GROWTH IN THE SECOND QUARTER, A LOT OF THE ESTIMATES THAT WE GET AT "THE WALL STREET JOURNAL," FOR FOURTH QUARTER IS THAT IT IS GOING TO SLOW DOWN A LITTLE BIT. ON OVERALL GROWTH GOING TO SLOW DOWN, GROWTH IS GOING TO SLOW DOWN GOING INTO 2019 IN A INVENTORY PIECE PLAYS INTO THAT. >> SEEMS TO ME ALMOST A% NUMBER FOR PEOPLE WHO ARE FED WATCHERS, RIGHT IS IF BECAUSE IT ISN'T HIGH ENOUGH TO SPUR ALARM AT FED, ANY ACCELERATION OR YOU KNOW, INCREMENTAL RATE HIKES NEXT YEAR NEITHER LOW ENOUGH TO TAKE THEM OFF PATH SEEMS TO ME THAT IS NEUTRAL. DAGEN: ALTHOUGH I WILL ADD LOOKING AT THIS REPORT, HIGHER BORROWING COSTS HAVE HURT HOUSING, AND AUTO SALES. SPENDING OWN MOTOR VEHICLES IN PARTS ADDED JUST 0.09 PERCENTAGE POINTS THIRD QUARTER GROWTH, AND TERM REVENUE FIXED INVESTMENT FELL 4% ANNUAL RATE THIRD QUARTER IS THAT. REPORTER: RESIDENTIAL HAS BEEN A BIG DRAG, FOR SEVERAL QUARTERS, NOW, AND THAT IS CONTINUING A LITTLE PUZZLING UNDER SUPPLY IN THE HOUSING MARKET, BUT BUILDERS ARE NOT BUILDING LABOR IS SHORT, AND LAND SUPPLY IS SHORT COSTS ARE GOING UP, SO, YOU KNOW, WE SHOULD BE SEEING MORE BUILDING WE ARE NOT GETTING IT RIGHT NOW. DAGEN: THERE IS -- DURING THE SUMMER, THERE WAS A PLENTIFUL AMOUNT OF INVENTORY ON THE MARKET IN MANY HOUSING MARKETS THAT WERE ALREADY WEAK, THERE ARE A LOT OF POCKETS OF WEAKNESS IN HOUSING IN THIS COUNTRY THAT ARE OVERLOOKED BECAUSE WE TEND TO FOCUS ON THE MURDER -- >> SUPPLY ACTUALLY GOING UP IN IF METRICS 7.1 MONTH SUPPLY ONE METRIC EXISTING HOME SALES OTHER THING I POINT OUT NO FED MINUTES WAS POINTING OUT THAT HIGHER RATES MIGHT BE CRIMPING RESIDENTIAL INVESTMENTS TO YOUR POINT. >> I ALSO THINK THAT YOU KNOW UNDERSTANDS STAND BEING THIRD QUARTER RATE BUSINESS INVESTMENT WAS WEAK THIS IS THE WEAKEST SINCE FOURTH QUARTER OF 2016, SPENDING ON STRUCTURES DOWN, YOU WOULD EXPECT COMPANIES TO PULL BACK IN TERMS OF SPENDING, BUT THE UNCERTAINTIES OF TARIFFS, WITH THE DEMAND PICTURE ON THE HORIZON, BECAUSE THERE IS ALL OF THIS WORRY THIS NARRATIVE THAT THINGS SLOW DOWN A LITTLE BIT I AM NOT SURPRISED THE LEVEL OF INVESTMENT SPENDING, IS WEAK THIS THIS REPORT JON PARTICULARLY AFTER WE HAVE SEEN ANIMAL SPIRITS LAST TWO YEARS, SPENDING HAS BEEN UP. >> THERE ARE THREE THINGS GOING ON IN THE BUSINESS INVESTMENT SIDE WE HAVE TO LOOK AT ONE IS YOU MENTIONED STRUCTURES DOWN STRUCTURES HAS BEEN VERY STRONG, THERE HAS BEEN A LOT OF INVESTMENT GOING ON IN OIL AND GAS RATES OIL PRICES CAME UP, STABILIZED THE OTHER THING YOU MENTIONED, YOU KNOW, WITH TARIFFS COMING ON A LOT OF COMPANIES ARE TALKING ABOUT SLOWING THEIR INVESTMENT PLANS BECAUSE, ABOUT JUST SO UNCERTAIN WHAT TRADE LANDSCAPE IS GOING TO LOOK LIKE THEN THE THIRD PIECE TAX CUTS THE TRUMP ADMINISTRATION REPUBLICANS IN CONGRESS CUT TAXES CORPORATE TAX RATES AGGRESSIVELY TO TRY TO SPUR BUSINESS INVESTMENT. BUT IT LOOKS LIKE THIS TARIFF UNCERTAINTY IS TAKING AWAY FROM THE BOOM THAT THEY WERE HOPING TO GET ON BUSINESS INVESTMENT SIDE. YOU KNOW, AGAIN IF THESE GROWTH RATES ARE GOING TO BE SUSTAINABLE IT IS GOING TO