The Atlanta Journal-Constitution
Household spending likely key for GDP
Other factors mean consumers may decide if growth continues.
Bloomberg
On the surface, U.S. economic growth last quarter is projected to look decent and little changed from the prior period. But the main figure could mask a misfire in the economy’s chief engine: the consumer.
Gross domestic product probably climbed at an annualized 2.1% rate for a second straight quarter, according to the median forecast in a Bloomberg survey of economists before the Commerce Department’s report today. However, the principal sources of fuel for the top-line number — a narrower trade deficit, driven almost entirely by a drop in imports, and stronger residential investment — likely helped offset a pullback in personal consumption.
Household spending, coming off the best consecutive quarters since late-2014 to early 2015, kept
economic growth on pace last year through stiff headwinds including a corporate investment slowdown, the U.S.-China trade war and the grounding of Boeing Co.’s 737 Max plane. But in the fourth quarter, economists forecast personal consumption rose just 2%, down from 3.2% in the third quarter and 4.6% in the second.
A downshift in spending is in line with economists’ expectations for a moderating growth picture that makes achieving President Donald Trump’s goal of 3% economic growth more challenging ahead of the November election. Year-over-year GDP growth is forecast to slow to 1.8% in the fourth quarter of 2020, down from 2.3% in 2019.
While still a solid pace, the question of 2020 becomes: “Can the consumer continue to sustain the expansion while we’re in this soft patch of business spending?” said Brett Ryan, senior U.S. economist at Deutsche
Bank. “The fourth-quarter GDP data may call that into question.”
Consumer spending, which accounts for about 70% of GDP, is always an important driver of growth, but two consecutive quarters of falling business investment have shifted the responsibility of keeping the expansion afloat squarely on the back of American shoppers.
While consumers and the economy had the benefit of three Federal Reserve rate cuts in 2019, the central bank’s policy makers are seen keeping borrowing costs steady at their meeting Wednesday and the rest of the year. Still, traders are increasingly projecting an interest-rate cut this year.
Like the overall GDP reading, the strength stems more from the figure’s accounting than actual strength in the underlying fundamentals. Exports have increased slightly but remain broadly unchanged while imports have sharply dropped.
Offsetting a weaker consumer are “lower imports, which is generally not a wonderful sign in terms of the vitality of the domestic economy,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.
The severity of the pullback, however, probably reflects American companies trying to get ahead of some of the tariffs earlier in the year. Leading up to the Sept. 1 U.S. tariffs on Chinese consumer goods, America saw a boost in imports. Those figures have dropped more than 4% since then.