Baltimore Sun

U.S. economy chugs along in 3rd quarter

Still, some experts warn of slowdown despite 3.5% rate

- By Martin Crutsinger

WASHINGTON — The U.S. economy grew at a robust annual rate of 3.5 percent in the July-September quarter as the strongest burst of consumer spending in nearly four years helped offset a sharp drag from trade.

The Commerce Department said Friday that the third quarter’s gross domestic product, the country’s total output of goods and services, followed an even stronger 4.2 percent rate of growth in the second quarter. The two quarters marked the strongest consecutiv­e quarters of growth since 2014.

The result was slightly higher than many economists had been projecting. It was certain to be cited by President Donald Trump as evidence his economic policies are working. But some private economists worry that the recent stock market declines could be a warning signal of a coming slowdown.

They noted that Friday’s GDP report showed business investment slowed dramatical­ly in the third quarter, growing at an annual rate of just 0.8 percent, the weakest in nearly two years, after a much stronger 8.7 percent gain in second quarter.

Analysts said the slowdown could be an indication that last December’s tax cuts, which offered special breaks for business investment, were beginning to wane. There was also concern that the slowdown could reflect adverse impacts from rising trade tariffs with businesses less reluctant to invest under the threat of a trade war between the United States The economy kept its momentum in the July-September period. Above, trucks travel along a California loading dock. and China.

Gregory Daco, chief U.S. economist for Oxford Economics, said he expects more modest GDP growth in coming quarters, citing the fading impact of the tax cuts, higher interest rates from the Federal Reserve and increasing trade tensions.

The GDP report along with next week’s unemployme­nt report for October are the last major looks at the economy before voters go to the polls in the midterm elections.

Mick Mulvaney, head of the president’s budget office, said in a CNBC interview that while business investment was flat this quarter, it followed several quarters when investment has been “fantastic.” He also said the administra­tion was not concerned about the stock market sell-off this month.

“The stock market is going to go up and down,” he said. “Certainly we follow it, but we don’t use it as an indicator of where we are headed.”

For this year, economists are projecting the momentum built up should result in growth of 3 percent, the best annual showing in 13 years. But they believe the impact of Trump’s trade war with China and rising interest rates will slow growth in 2019 to around 2.4 percent, with a further decline to under 2 percent in 2020.

“I think we will see a significan­t slowdown, in part because economic growth has been raised to an artificial­ly high level by the tax cuts,” said Sung Won Sohn, chief economist at SS Economics in Los Angeles.

Trump in recent weeks has accelerate­d his attacks on the Federal Reserve for raising interest rates, contending that the higher rates by slowing the economy will work against his efforts to speed up growth through the $1.5 trillion tax cut package Trump got Congress to pass last year.

“Every time we do something great, he raises interest rates,” Trump said in an interview this week with The Wall Street Journal in which he again said he viewed the Fed as the “biggest risk” facing the economy “because I think interest rates are being raised too quickly.”

The central bank has raised rates three times this year and signaled it will raise rates one more time this year and expect to raise rates three times in 2019. Those moves are being made to ensure that tight labor markets, with unemployme­nt at a 49-year low of 3.7 percent, and strong growth don’t trigger unwanted inflation.

 ?? MARCIO JOSE SANCHEZ/AP ??
MARCIO JOSE SANCHEZ/AP

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