‘Close to peak’ U.S. growth at risk on trade threats, housing
WASHINGTON — The U.S. economy is booming this quarter as tax cuts power consumers and businesses. Yet risks are mounting that the high will be short-lived.
The housing market is struggling to build on its progress thanks to supply constraints and soaring property values, with data Tuesday showing an unexpectedly large drop in construction permits. Manufacturing is coming off the boil amid lengthening order backlogs and accelerating input prices, particularly for oil and partly due to tariffs on metals. On top of that, President Donald Trump has brought the U.S. to the verge of a trade war with China that could see levies on hundreds of billions of dollars in goods.
It all amounts to increasing headwinds on economic growth that has a fair shot this quarter at reaching 4 percent, the fastest since 2014. While the Trump administration said such strength makes it a good time to tighten the screws on U.S. trading partners, especially China, markets gave a less sanguine judgment on Tuesday, and economists caution that prolonged pain from trade will complicate the path for companies and consumers.
With the U.S. economy about to enter the 10th year of expansion — a time where growth typically faces hurdles in reaching new heights — any slowdown would arrive just as the rest of the world shows signs of losing steam.
U.S. growth “is close to a peak” and momentum will be “cooling from here,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics in New York. The trade risks “come at a point when the economy itself is in the late stage of the business cycle, it’s already close to capacity, where you can’t easily substitute for imports, and businesses are worried about trade tensions.”
The U.S. pledged Friday to push ahead with tariffs on $50 billion of Chinese imports. Trump delivered another jolt on Monday by asking the administration to identify $200 billion in Chinese products for additional tariffs of 10 percent, plus another $200 billion after that if the Asian nation retaliates. Beijing vowed to respond “forcefully” to Trump’s latest move.
Further clouds arrived Tuesday in U.S. data showing mixed progress on housing in May. While groundbreaking on homes jumped to the strongest in more than a decade, it was largely due to a surge in the Midwest and helped by conducive weather. Permits — a proxy for future construction — fell for a second month.