U.S. GDP growth forecast for 2021 is strong: Bank of America’s Meyer
US economic growth did not slow as much as expected in the third quarter as lower business investment was offset by robust consumer spending and a rebound in exports, further dampening fears of a financial market recession.
The Commerce Department said Wednesday that economic activity rose 1.9% year-on-year in the third quarter, down slightly from 2% in the second quarter. Economists surveyed by Dow Jones expected that economic growth in the third quarter will be 1.6%.
The data, which exceeded expectations, was the result of strong consumer activity as well as the volume of government spending. Personal consumption spending, the main indicator of American household spending, rose 2.9% year on year, while government spending rose 2%.
However, a US Department of Commerce report on Wednesday would hardly have discouraged the Federal Reserve from cutting interest rates again amid the continued threat of the longest growth due to uncertainty over trade policy, slowing global growth and the imminent departure of the UK from the European Union..
The Trump administration’s trade war with China has eroded business confidence, contributing to the second consecutive quarterly cut in business investment. The stimulating effect diminishes from last year’s $ 1.5 trillion tax cut package.
The GDP report, which was released hours before the Fed ended its two-day policy meeting, showed the overall inflation trend, which remained moderate in the last quarter..
The US central bank is expected to cut interest rates for the third time this year on Wednesday. Fed cut rates in September after lower borrowing costs in July for the first time since 2008.
Growth in gross private domestic investment continued to decline in the three months ended September 30, falling 1.5%, much better than the 6.3% fall in the second quarter. Business expenses, in particular, affected the amount of investment, as capital construction costs continued to decline, falling 15.3%. The pace of equipment costs decreased by 3.8%.
«For manufacturers, the biggest challenge remains the recruiting of skilled labor and the uncertainty in trade, making it difficult to recruit and expand business operations», – said Chad Mutrei, chief economist at the National Association of Producers.
Investments in residential real estate recovered to 5.1% from negative 3% in the previous quarter.
Consumption, which accounts for more than two-thirds of economic activity, continued to show resilience in the third quarter as one of the few growth drivers.
However, consumption growth of 2.9% in the third quarter shows a slowdown from 4.6% in the second quarter. Fears of a global downturn affecting the American economy, coupled with a slowdown in production, appear to have affected recent retail sales in September, as American households may start saving on everyday expenditures.
Earlier this month, the Commerce Department said retail sales fell 0.3% in September as households cut spending on building materials, online purchases and especially cars. The decline was the first since February.