The Federal Reserve gets one final sweeping view of the economy before its interest-rate decision this afternoon. U.S. economic growth settled in at a lower gear in the third quarter, with growth in consumer spending and housing investment offsetting a drop in business investment. Gross domestic product—the value of all goods and services produced in the U.S.—rose at an annual rate of 1.9% from July through September adjusted for inflation and seasonality. That was down a touch from 2% in the second quarter.
The data arrives as the Fed leans toward an interest-rate cut to help shore up the economy. An announcement on the Fed decision is expected at 2 p.m. ET.
KEY THEMES
Thank Goodness for the American Consumer
The U.S. economy slowed a tiny bit in the third quarter of the year. Consumer spending was the main driver of growth, again. That bodes well for the economy as long as employers keep creating jobs and consumer confidence remains robust. Other big entries in the GDP ledger were more mixed. Domestic-facing sectors of the economy, including consumer spending, housing and government spending, all made positive contributions. Business investment declined for the second straight quarter. International trade and inventories were minor drags. “Any way one slices this data set one thing is clear: The U.S consumer is keeping the economy from sliding towards stall speed,” says RSM US chief economist Joseph Brusuelas.
Businesses Pull Back
Business spending was the the third-quarter’s big weak spot—and a potential concern for the economy. Nonresidential fixed investment plunged 3%. “This is not only the worst performance since late 2015, but it is also the first back-to-back contraction of more than 1% in business investment since 2009, reflecting the drags from weak global growth, rising trade protectionism, elevated policy uncertainty, a strong dollar, and depressed energy activity,” says Gregory Daco, chief U.S. economist at Oxford Economics.
One bright spot within a weak segment: Businesses are spending more on software, and research and development. That could spur productivity gains, and economic growth, down the line.
Home Improvement
Residential investment had declined for six straight quarters, reflecting the housing market’s struggles. The cure: falling interest rates and high demand for homes. The modest rebound for the sector offers some welcome support for the economy.
I’m From the Government, and I’m Here to Help
The economy recently has enjoyed a boost that was missing from a long, early stretch of the expansion: government spending. Federal outlays have goosed GDP for 10 consecutive quarters. State and local spending has kicked in for seven of the last eight.
Measuring Up
The cornerstone of President Trump’s domestic economic agenda is the tax cut he signed into law in late 2017. It would, he said, lift U.S. sustained annual economic growth to 3% or even 6%. Nearly two years later, that hasn’t happened, and there is scant sign it will. This should not come as a surprise. The administration’s claim rested on the belief that cutting the corporate tax rate to 21% from 35% and allowing companies to immediately write off the cost of new equipment would boost business investment and thus worker productivity and wages. But numerous other advanced countries had already cut their corporate rates in the prior two decades without experiencing anywhere near the growth boost the Trump administration promised. Many experienced no boost at all, Greg Ip writes.
WHAT ECONOMISTS ARE SAYING
“All things considered, the results are a poignant reminder of the resiliency of the U.S. economy and consumers.” —Jim Baird, Plante Moran Financial Advisors
“While we continue to think a recession will be avoided, the latest business surveys are consistent with a further slowdown in growth to only around 1% annualised in the fourth quarter.” —Andrew Hunter, Capital Economics
“The damage being done by the trade war is plain to see in the business investment numbers—which showed a second consecutive quarterly decline at -3% annualized—but consumer facing indicators are holding up better.” —Brian Coulton, Fitch Ratings
“The 3Q GDP print will reaffirm the Fed’s view that while the labor market and the consumer remain strong, investment and exports remain weak and continue to pose downside risks to the outlook.” —Ellen Zentner, Morgan Stanley
from Real Time Economics https://ift.tt/2Py5hjG
No comments:
Post a Comment