A series of government reports Wednesday cast a picture of a steadily growing U.S. economy, fueled by solid consumer spending and defying threats — at least for now — from a U.S.-China trade war and a global slowdown.
The Commerce Department estimated that the economy grew at a moderate 2.1 per cent annual rate over the summer, slightly better than it had previously estimated. Other reports showed stronger consumer spending and a rebound in orders for big-ticket manufactured goods.
For the July-September quarter, the rise in the gross domestic product, the economy’s total output of goods and services, exceeded the government’s initial estimate a month ago of a 1.9 per cent annual rate. A key reason is that businesses didn’t cut back on investment spending as much as first estimated.
The economy had begun the year with a sizzling 3.1 per cent GDP rate, fueled largely by the now-faded effects of tax cuts and increased government spending.
Many analysts worry that GDP growth is slipping in the current October-December quarter to a 1.4 per cent annual rate or less as business investment weakens further.
But most say the slowdown won’t likely be as severe as it might have been because consumers, who drive about 70 per cent of the economy, are signaling that they will likely keep spending through the holiday shopping season and into next year. That spending is being supported by rising incomes and an unemployment rate that is near the lowest levels in a half century.
Consumer spending gained some momentum entering the final three months of the year, with spending rising by a 0.3 per cent annual rate in October, the fastest monthly pace in three months.
And in the U.S. manufacturing sector, which has been struggling with global economic weakness and damage from the Trump administration’s trade conflicts, orders for high-cost items rebounded in October by a 0.6 per cent annual rate after having declined in September.
Economists said the flurry of reports depict an economy that is regaining its footing after absorbing threats this year, from the global slowdown to the intensifying trade war with China, which has perpetuated uncertainties for businesses. Many companies have suspended plans to expand and invest.
Still, the stock market has set record highs on optimism that at least a preliminary U.S.-China trade agreement can be reached soon.
“We still expect GDP growth to slow a little further over the coming months, but the latest data suggest that the slowdown in the fourth quarter won’t be quite as bad as we had previously feared,” analysts at Capital Economics said in a note Wednesday.
The GDP report showed that business investment fell at a 2.7 per cent annual rate in the July-September period, the second consecutive decline. Yet that drop was offset by a solid 2.9 per cent gain in consumer spending.
Residential investment did rebound to an annual growth rate of 5.1 per cent after six consecutive quarters of falling home investment. Analysts attribute that rebound in part to falling mortgage rates.
For the full year, economists think GDP will expand 2.3 per cent, down sharply from a 2.9 per cent GDP gain in 2018. Last year’s increase had been fueled by the $1.5 trillion tax cut that President Donald Trump pushed through Congress and billions in additional spending for the military and domestic programs.
For 2020 as a whole, many economists envision growth of around 2 per cent. That would be roughly the annual average that has prevailed since the Great Recession ended in 2009. But it is well below the 3 per cent-plus economic growth rates that Trump pledged to achieve with his program of tax cuts, deregulation and America-first trade policies.
As recently as several months ago, as U.S.-China trade tensions were escalating, global growth was slowing and financial markets were suffering losses, many analysts worried that the economy might be on the verge of recession.
But the Federal Reserve, which had raised rates four times in 2018, began cutting rates in July, giving a boost to interest-rate sensitive sectors of the economy. This month, after its third rate cut of the year, the Fed signaled that it would likely keep rates unchanged in coming months unless it saw signs of significant economic weakness.
In a speech Monday, Fed Chairman Jerome Powell expressed an optimistic view about the economy, saying with unemployment near a 50-year low of 3.6 per cent, there’s still “plenty of room” for wages to rise and for more Americans to join the workforce.
Trump has attacked Powell and his colleagues for raising rates last year and for being slow to cut them this year. Heading into the 2020 presidential election, Trump may keep up his Fed attacks, seeing the central bank as a convenient target if the economy starts to falter.
But the Fed is widely thought to have achieved its goal of a soft landing in which it’s slowed growth enough to keep the tightest job market in a half century from igniting inflation but not so much as to cause a downturn.
“We are in sort of a Goldilocks situation, with an economy that is not too hot or too cold,” said Sung Won Sohn, a professor of economics and finance at Loyola Marymount University. “We are sailing along at a nice pace, and we should enjoy it.”