US economy shows resilience with 2nd straight solid quarter
WASHINGTON — Powered by businesses and consumers, the U.S. economy grew at a solid 3 annual pace last quarter despite two devastating hurricanes — evidence of economic durability and all but assuring that the Federal Reserve will resume raising interest rates late this year.
Friday’s figures from the government marked the first time in three years that the economy has expanded at a 3 percent or more annual rate — historically, a normal pace for a healthy economy — for two straight quarters.
More than eight years since the Great Recession officially ended, the economy is still posting consistent gains — in the job market, in business investment, in consumer spending and corporate earnings. Unemployment is at a 16-year low. Companies are restocking. An improving global economy is boosting U.S. exports. Stock prices are rising in tandem with company profits.
The 3 percent annual growth for the July-September quarter in gross domestic product — the total output of goods and services produced in the United States — followed a 3.1 percent annual pace in the previous quarter. It was the strongest two-quarter showing since 2014.
The economy managed to expand at a healthy rate last quarter despite the damage inflicted by Hurricanes Harvey and Irma, which many economists think shaved at least one-half of 1 percentage point off annual growth in the July-September period.
President Donald Trump has pledged to accelerate growth from the tepid 2.2 percent annual averages that prevailed since the recession ended in 2009. The administration was quick to hail the GDP report as evidence that Trump’s economic program was already helping to lift the economy.
Commerce Secretary Wilbur Ross asserted that Friday’s GDP report “proves that President Trump’s bold agenda is steadily overcoming the dismal economy inherited from the previous administration. … And as the president’s tax cut plan is implemented our entire economy will continue to come roaring back.”
The administration contends that Trump’s proposals for tax cuts, deregulation and tougher enforcement of trade laws will achieve annual growth exceeding 3 percent in the coming years.
Most economists, though, have said they think that even 3 percent annual gains will be hard to achieve for an economy that, for all its strength, is enduring a slowdown in work productivity as well as an aging workforce. Many analysts believe annual growth in the current October-December quarter will amount to a rate of around 2.7 percent.
Paul Ashworth, chief U.S. economist at Capital Economics, said he envisions just 2.1 percent growth for all of 2017. He suggest that if the Trump administration manages to shepherd at least a modest tax cut measure through Congress, growth in 2018 could accelerate to 2.5 percent. But he said he expects further interest rate increases by the Federal Reserve to slow the economy’s growth to just 1.5 percent in 2019.
Harvey made initial landfall in Texas on Aug. 25, and Irma blitzed Florida on Sept. 10. The government said that while economic activity ranging from energy refineries in Texas to citrus farming in Florida were hurt by the storms, it could not estimate how much the hurricanes had weakened overall U.S. growth last quarter.
Private economists have estimated that the storms sapped between one-half and 1 percentage point from annual growth in the July-September period. But analysts say they think much of that lost output will be recovered as the affected areas are rebuilt.
The 3 percent annual growth rate for third quarter GDP and the 3.1 percent pace in the second quarter followed a much weaker 1.2 percent annual increase in the January-March quarter.
In the third quarter, consumer spending remained solid, though it slowed slightly to a 2.4 percent annual pace from a sizzling 3.3 percent rate in the April-June period. Part of the gain in consumer spending was due to auto sales, which accelerated from August to September — the strongest month this year so far.
The biggest drivers in last quarter’s growth were a robust increase in business investment in equipment and an acceleration in companies’ rebuilding of inventories.
Other areas of the report showed weakness. Government spending fell for a third straight quarter. Residential construction declined. But trade added 0.4 percentage point to growth, with exports growing briskly while imports fell.
On Thursday, the House gave approval to a Republican-proposed budget that would provide for $1.5 trillion in tax cuts over the next decade. Administration officials have said the tax cuts will spur faster growth and that the faster growth will erase much of the cost of the tax cuts.
Democrats and many economists have challenged that forecast as unrealistic.