The US economy isn’t quite as strong as it looks

business news

  • The US economy grew at a rate of 3% in the third quarter, the Commerce Department said Friday.
  • Both business investment and consumer spending made solid contributions to third-quarter gains.
  • That headline, however, masks the fact that overall growth is still closer to 2%, and some key indicators explain why.
  • Inflation remains well below the Federal Reserve’s target.

Gross domestic product, the measure used to represent the US economy, expanded by a robust 3% in the third quarter, the Commerce Department reported on Friday. That’s a second straight quarter of growth above the 2% pace that has persisted for much of the economic recovery, and it’s well above Wall Street’s expectation of a 2.6% rise.

But there are a few important details in the numbers that economists, including those at the Federal Reserve, will look at. They paint a more subdued picture.

First the good news

The third-quarter reading is encouraging, if nothing else because it suggests resilience to both the high level of political turmoil in the country and the three devastating recent storms. (Notably, Puerto Rico is excluded from the GDP calculations because it is not a state.)

The sources of growth were fairly broad-based. Consumer spending rose by 2.4% following a 3.3% gain in the second quarter, while business investment jumped by 3.9%. Exports, too, posted strong gains.

Traders are focused on the upside, which should give them more confidence that the Fed will raise interest rates again in December. The dollar moved higher right after the report.

Now for some cold water

A few elements of the report should also give economists pause. One thing driving the number higher was a rise in business inventories. That could mean businesses are stocking up in anticipation of growth in demand — or it could mean they’re having a harder time moving goods.

“The above-trend growth was largely a consequence of combined contributions of inventory accumulation and net exports … that is not likely to be repeated on a consistent basis,” Ward McCarthy, an economist at Jefferies, wrote in a research note.

At the same time, investment in structures slumped 5.2% and residential investment slipped 6%. Also worrisome, personal disposable income rose just 0.6% adjusted for inflation.

That’s “not a great sign as far as the consumption outlook is concerned,” Paul Ashworth of Capital Economics wrote. It also left the US savings rate at a decade-low 3.4%, as this chart shows.

Another worrisome sign, especially from the Fed’s perspective: Inflation, as measured by the personal consumption expenditures index, registered 1.5% in the third quarter and just 1.3% excluding food and energy — far below the central bank’s 2% target.

It signals an economy still running below its potential, with wages struggling to rise despite the good headlines.

The most likely scenario is that after two quarters of stronger growth, the economy will settle back into the same 2% growth pattern that has persisted since the country emerged from the Great Recession in the summer of 2009.

SEE ALSO: Tens of millions of Americans are being left out of the economic recovery — and it’s easier than ever to see who they are

Join the conversation about this story »

NOW WATCH: A $6 trillion investment chief reveals the one area of the stock market to avoid

Комментариев нет

Добавить комментарий

Этот сайт использует Akismet для борьбы со спамом. Узнайте как обрабатываются ваши данные комментариев.

business news
Trump’s trade fight and the unwinding of a $3 billion bet are clobbering copper

Copper prices on the London Metal Exchange slipped below $6,000 for the first time in a year Thursday. Analysts say trade escalations are weighing on a market already under pressure. An unwinding of a $3 billion long position put pressure on prices earlier this month.  Follow copper in real time …

business news
Trump threatens to slam a massive tariff on European cars, which could cause economic chaos

President Donald Trump on Friday threatened to impose a 20% tariff on imports of cars from the European Union. The move would be a huge escalation of Trump’s ongoing trade conflict with the EU. Trump already hit Europe with steel and aluminum tariffs, angering EU leaders and triggering retaliation. President …

business news
Bitcoin’s rough patch looks like the Nasdaq during the tech bubble — except it’s moving 15 times faster

Bitcoin fell as much as 70% from its mid-December high through its recent early-February low. The cryptocurrency’s price chart mirrors that of the Nasdaq Composite Index during the dotcom bubble era, but there’s a catch. Historical fluctuations in the Nasdaq should provide a template for how bitcoin will trade going …