Robust US GDP growth continued in the third quarter but at a slower pace just ahead of key congressional elections, while the economy faces mounting headwinds from trade wars, the Commerce Department reported Friday.
Coming just 11 days before a nail-biting midterm vote that could shift the balance of power in Washington, the new figures show the world’s largest economy still has a big head of steam after tax cuts and fiscal stimulus enacted over the last year.
However, economists say the underlying numbers offer grounds for concern.
GDP grew at a brisk annual rate of 3.5 per cent for the July-September period, according to the government’s initial estimate, down sharply from 4.2 per cent growth in the prior quarter but still overshooting analyst expectations.
The result made for the strongest six-month period since mid-2014 and puts growth above the prevailing trend for most of the recovery since the Great Recession, although it is based on preliminary data subject to revision.
President Donald Trump is banking on faster growth to pay for the December tax cuts and increased government spending, which nevertheless drove the US budget deficit to a six-year high in the most recent fiscal year.
Commerce Secretary Wilbur Ross said the economic growth had defied “conventional wisdom” and credited the Trump administration’s economic policies.
“The president’s actions from deregulation to tax reform have supercharged the American economy, driving it to new heights,” he said in a statement.
But economists say growth should slow in the coming quarters as tax cuts and fiscal stimulus recede into the past while inflation mounts, interest rates rise, protectionist trade measures continue to bite and growth slows in the world’s other major economies.
“The latest health check-up revealed an ageing but still robust US economy,” Oxford Economics said in an analytical note.
“However, the doctor recommends avoiding any unnecessary exposure to cold headwinds.”
Republican candidates appear to have shied away from campaigning on the tax cuts, as some voters remain skeptical of claims they have directly helped ordinary Americans.
Officials said the GDP results also reflected damage from Hurricane Florence but they could not precisely estimate the impact on growth.
Consumers and companies were still enjoying a cash boost from the tax cuts, according to the Commerce Department. Personal consumption rose four per cent, the fastest since the end of 2014.
Companies, notably farmers and machine makers, also spent liberally to grow their inventories.
But the latest numbers also showed signs of continuing distortion from Trump’s trade wars with China and others. Economists say this poses a risk to growth and caused the International Monetary Fund to cut its global GDP forecasts for next year.
“The headline says strong growth but there are warnings in the details,” economist Joel Naroff said in a research note.
Soybean exports fell sharply, weighing on growth, according the Commerce Department. This flipped the second quarter’s results on their head, when Chinese importers raced to build stockpiles ahead of July’s retaliatory tariffs by Beijing.
Meanwhile, American imports, which subtract from GDP calculations, rose sharply, largely driven by purchases of autos and consumer goods.
Total exports fell 3.5 per cent, the weakest showing since the end of 2016, while imports gained 9.1 per cent, the fastest growth since the end of last year.
Businesses also spent much less on building factories and offices than they had, as investment in structures fell 7.9 per cent, the largest drop in nearly three years.
The struggling housing market was also a drag, falling by four per cent from the prior quarter in its sharpest fall in more than a year.
Wall Street closed sharply lower but markets were less moved by the GDP data than by disappointing earnings.