Consumers support US economy as business spending slumps
WASHINGTON: US economic growth slowed less than expected in the third quarter as a further contraction in business investment was offset by resilient consumer spending, further allaying financial market fears of a recession.
“An orderly economic slowdown is in progress,” said Sung Won Sohn, a business economics professor at Loyola Marymount University in Los Angeles. “Unfortunately, businesses do not share the same optimism consumers have.”
The Trump administration’s trade war with China has eroded business confidence, contributing to the second straight quarterly contraction in business investment. The fading stimulus from last year’s $1.5 trillion tax cut package is also sapping momentum from the expansion, now in its 11th year.
There are concerns that the slump in business investment will eventually spill over to consumer spending and significantly restrain economic growth. But Fed Chair Jerome Powell said the central bank did not see that risk, citing a strong labour market.
“We really don’t see it,” Powell told reporters. “The consumer-facing companies that we talk to in our vast network of contacts report that consumers are doing well and are focused on the good jobs market and rising incomes.”
Gross domestic product increased at a 1.9 per cent annualized rate in the third quarter, also as businesses maintained a steady pace of inventory accumulation, exports rose and the housing market rebounded after contracting for six straight quarters, the government said in its advance estimate of GDP.
The economy grew at a 2.0 per cent pace in the April-june period.
Economists polled by Reuters had forecast GDP increasing at a 1.6 per cent rate in the July-september quarter. Third-quarter growth marked a further slowdown from the brisk 3.1 per cent rate notched in the first three months of the year. Still, the economy is expanding at its potential, estimated between 1.7 per cent and 2.0 per cent.
The GDP report showed the overall trend in inflation remaining moderate last quarter. The dollar fell against a basket of currencies, while US Treasury prices rose. Stocks on Wall Street were trading higher.
Recession fears have subsided in recent months mainly on hopes of a resolution to the 15-month trade war. President Donald Trump this month announced a truce, delaying additional tariffs that were due in October. But a trade deal is far from certain. Sources close to the negotiations say Trump’s demand that Beijing commit to big purchases of American farm products has become a major sticking point in talks.
Despite last quarter’s better-thanexpected performance, the economy is expected to again miss the White House’s ambitious goal of 3.0 per cent annual growth this year. It grew 2.9 per cent last year.
“The economy is still labouring against the headwinds of trade war uncertainty,” said Chris Rupkey, chief economist at MUFG in New York. “Even if growth miraculously soars 4.0 per cent in the fourth quarter the economy won’t grow faster than 2.8 per cent in 2019.”