WASHINGTON, Nov 28, 2019 (BSS/AFP) – The US economy grew faster than
originally reported in the July-September period and prices remain tame, but
amid the unresolved trade war with China economists and businesses note some
worrying issues persist.
Higher exports and residential investment helped boost growth to a 2.1
percent annual rate from the 1.9 percent estimated last month for the third
quarter, according to the more complete data the Commerce Department released
Wednesday.
But economists note the apparent good news on the economy is tempered by
some concerning elements, reflected once again in a nationwide survey by the
Federal Reserve, showing continued concerns about the impact of tariffs and
trade tensions.
Business investment, which has been hit hard by President Donald Trump’s
trade war with China, has declined sharply but since it dropped by less than
originally reported, falling 2.7 percent rather than three percent in the
first estimate, that smaller decline helped growth.
Meanwhile, businesses building up their inventories of products added
nearly 0.2 points to the GDP calculation, according to the revised data.
While that could be due to companies stockpiling ahead of announced tariffs,
it could also reflect slowing consumption.
“In short, slightly stronger than before, but mainly because of
inventories. That data continue to show growth slowing, but not
dramatically,” said economist Jim O’Sullivan of High Frequency Economics.
The consensus among economists predicted no revision to the GDP result.
But some correctly forecast the upward revision which puts the third
quarter on track to best the two percent growth in the second quarter, after
the 3.1 percent expansion in the first three months of the year.
Consumption, the traditional driver of growth, accounting for 70 percent
of US GDP, increased 2.9 percent, with a strong gain in spending on durable
goods such as cars or appliances, according to the data. However, that is a
much smaller increase than the prior quarter.
Investment in real estate market jumped 5.1 percent, the strongest in two
years, boosted by low interest rates.
Exports, which fell 5.7 percent at the height of the trade war in the
second quarter, recovered slightly in the latest quarter, rising 0.9 percent
— two-tenths stronger than originally reported.
Imports also were stronger than previously estimated, rising by 0.8
percent.
The latest reading on GDP growth “indicates the economy is not about to
fall off a cliff,” said Gregory Daco of Oxford Economics.
– More slowing ahead? –
“However, the lingering global industrial slump, persistent trade policy
uncertainty and cooling income growth all point to weaker activity in the
coming months,” he said in an analysis.
The Fed has lowered overnight interest rates three times this year as
insurance against the global and domestic economic slowdown.
But the Fed’s “beige book” survey of businesses, farmers and bankers
showed the continued negative impact of trade tensions and tariffs, with most
of the 12 regions showing only slight growth.
Three stagnated, while manufacturing in the majority of regions showed no
growth.
In Richmond, businesses continue to “face constraints from tariffs and
trade uncertainties,” which has led to higher costs, the survey showed.
In Atlanta, trade policy is “a potential downside risk to their outlook,”
while energy companies in Dallas complained the tariffs and uncertainty were
“squeezing margins” and “making planning difficult.”
O’Sullivan noted that the manufacturing sector “is disproportionately
exposed to weakening in foreign demand.”
Amid the deluge of data ahead of Thursday’s Thanksgiving holiday, another
report showed the Fed’s preferred inflation measure — the PCE price index —
held steady at a low 1.3 percent in October remaining well below the Fed’s
two percent inflation goal.
Excluding volatile food and energy prices, the “core” PCE inflation index
slowed slightly to 1.6 percent from 1.7 percent in the prior month.
Looking ahead to the fourth quarter, the Commerce Department in a separate
report said durable goods orders in October also were far better than
expected, rising 0.6 percent rather than the sharp decline economists had
forecast.
Without the volatile transportation sector, orders also rose by 0.6
percent.
But economists say they are suspicious of the data, which they expect to
be revised.