US economy grows faster in Q3, but trade woes remain | The Daily Star
12:00 AM, November 29, 2019 / LAST MODIFIED: 12:00 AM, November 29, 2019

US economy grows faster in Q3, but trade woes remain

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.

“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.

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