WASHINGTON – The U.S. economy grew at a solid 3.2 per cent annual rate from July through September, slightly slower than previously estimated but still enough to give the country the best back-to-back quarterly growth rates in three years.
The figure was revised down from last month’s estimate of 3.3 per cent, the Commerce Department reported Thursday. The change reflected a bit less spending by consumers, which was offset somewhat by increased spending by state and local governments.
Still, the 3.2 per cent growth followed a 3.1 per cent gain in the second quarter, the first consecutive quarters that growth has topped 3 per cent since 2014.
President Donald Trump has pointed to these gains as evidence his economic program is producing results. Many economists believe GDP growth this quarter could hit 3 per cent or better.
Congress this week passed a major tax overhaul, giving Trump the biggest legislative achievement of his first year in office. Economists believe the proposal will boost growth temporarily in 2018 and possibly 2019. But then they forecast that the positive effects will fade, with slower growth going forward due to higher interest rates stemming from the bigger government deficits.
But at the moment, economists are optimistic about growth prospects. The Federal Reserve’s Atlanta regional bank is forecasting GDP growth could hit 3.3 per cent this quarter. If GDP does top 3 per cent, it would mark the first time that has occurred since three quarters in late 2004 and early 2005.
Trump has predicted the tax cuts will be “rocket fuel” for the economy and many economists are looking for a growth spurt next year.
“The economy is rock solid for now and with fiscal stimulus kicking in next month, the economy’s afterburners could put this economy’s rocketing growth rate into even higher orbit,” Chris Rupkey, chief financial analyst at MUFG Union Bank in New York, said in reaction to the new GDP report.
For all of 2017, the economy is expected to grow around 2.3 per cent, a marked improvement from the slight 1.5 per cent gain in GDP in 2016. For 2018, economists believe growth will be even better, helped by the boost from the Republican tax cuts and a stronger global economy.
Mark Zandi, chief economist at Moody’s Analytics, is forecasting growth of 2.9 per cent for 2018, reflecting tax cuts that he predicts will add 0.4 percentage point to GDP next year. He expects the tax cuts to add 0.2 percentage point to growth in 2019. But even with that boost, he sees GDP slowing to a 2.2 per cent rate in 2019 before slowing to 1 per cent growth in 2020 as the higher interest rates drag on growth.
This forecast is in line with other analysts who see only a temporary gain from the tax cuts. They are at odds with forecasts of the Trump administration that the tax cuts will spur significant momentum that will lift the economy to sustained annual GDP gains of 3 per cent or better.
The report on third quarter growth was the government’s third and final look at the quarter. The economy showed resilience last quarter in the face of two hurricanes: Harvey, which hit Texas in late August, and Irma, which battered Florida in September.
The U.S. economy is benefiting from a pickup in global growth, a healthy job market, which supports consumer spending, and a drop in the value of the dollar against other major currencies, which makes U.S. products less expensive in foreign markets.
What you need to know:
— Business investment in equipment shot up at a 10.8 per cent rate, the best showing since the third quarter of 2014.
— Consumer spending, which accounts for about 70 per cent of U.S. economic output, grew at an annual pace of 2.2 per cent, a slight 0.1 percentage point less than last month’s estimate.
— Government spending and investment rose for the first time in three quarters, with spending by state and local governments revised to a small positive from a slight negative in the previous report.
— Housing construction fell for a second quarter, but the drop was not as severe as previously reported.
— The 1.5 per cent annual GDP gain last year was the weakest performance in six years, since the economy contracted by 2.9 per cent in 2009.
—GDP growth has averaged around 2 per cent in the current recovery, which is now in its ninth year and is the third longest in U.S. history.