Growth Rebound in U.S. Masks Less-Bright Picture of Demandby
American consumers kept spending, albeit at more moderate pace
Trade and inventories probably added to third-quarter GDP
The U.S. economy’s third-quarter scorecard on Friday will probably show a notable pickup in growth following a sluggish first half. The caveat: It occurred without an acceleration in consumer and business demand.
Gross domestic product rose at a 2.6 percent annualized rate, according to the median estimate in a Bloomberg survey, after averaging 1.1 percent in the previous six months. With the biggest part of the economy -- consumer spending -- moderating, much of the projected pickup stems from a narrower trade deficit and a rebuilding of inventories. While a report Wednesday showed a gain in merchandise exports last month, a broad-based drop in imports indicated domestic demand weakened as the quarter drew to a close.
“The economy had a disappointing first half and now we’re getting back on our feet,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Household purchases “are settling down after some boomy times,” and “all the acceleration is in net exports and inventories. The pace of growth, overall, remains slow.”
The figures surface days before the Federal Reserve’s rate-setting committee meets and Americans go to the polls to choose a new president. Central bank officials can point to evidence that growth is healthy enough to warrant raising interest rates, just not necessarily at the Fed’s gathering next week. Democrats and Hillary Clinton can claim the economy is improving, while Republicans and Donald Trump can just as plausibly say progress is tepid.
GDP is the sum of spending by consumers and government, business investment, inventory building and net exports. To get a better sense of underlying domestic demand, however, economists look at the figure that excludes shipments overseas and inventories. That measure, so-called final sales to domestic purchasers, probably slowed from the second quarter’s 2.4 percent pace.
The Commerce Department’s report is due at 8:30 a.m. in Washington. Growth close to or better than the median estimate would keep the Fed on track to raise interest rates in December, Feroli said. Investors see a slim chance for a rate move when policy makers meet Nov. 1-2, a week before the U.S. presidential election on Nov. 8.
An advance report on September inventories and trade, two of the most volatile parts of the GDP calculation, triggered upward revisions to economists’ tracking estimates for the third quarter.
Net exports, or the difference between overseas sales of American-made goods and services and what the U.S. buys from abroad, may have contributed again to GDP growth. They added 0.9 percentage point, according to Ted Wieseman, an economist at Morgan Stanley, following a 0.18 point lift in the second quarter.
The narrower goods-trade gap in September was hardly a sign of strength, as imports of industrial supplies, capital goods and consumer merchandise all declined. What’s more, exports are unlikely to be a reliable source of U.S. growth until global markets strengthen and the impact of a strong dollar fades, economists said.
Unsold goods also probably played a role in boosting growth as businesses accumulated stockpiles after cutting them in the second quarter. A contribution to GDP would end a streak in which changes in inventories weighed on growth for five consecutive quarters, the longest period in almost six decades.
Household consumption grew at a more moderate pace of 2.6 percent, after a 4.3 percent second-quarter jump that was the biggest since late 2014, according to the Bloomberg survey. Consumers, whose spending accounts for almost 70 percent of GDP, have benefited from a strong run of hiring, a pickup in wages, low inflation and cheap borrowing costs.
Corporate spending on equipment probably declined for a fourth straight quarter for the first time since the U.S. expansion began in 2009. While figures released Thursday showed shipments of non-defense capital goods excluding airplanes -- used in calculating GDP -- rose in September, they still fell during the quarter at an annualized 4.4 percent rate.
Southwest Airlines Co., which reported Wednesday that a key industry revenue measure may worsen this quarter, has joined American Airlines Group Inc. and Delta Air Lines Inc. in slowing expansion plans in an effort to boost ticket prices.
Continued caution on the part of businesses, at a time household spending is moderating, would make it harder for the economy to rev up further.
Trump, the Republican nominee, has said growth is down to 1 percent and headed lower, while his opponent, Clinton, has argued that she could help build on the economy’s improvement since the last recession.
The GDP report probably “gives a little more fuel for Trump’s platform,” because he can point to things like weak business investment, said Tom Simons, a senior economist at Jefferies LLC. “It’s a less compelling source of evidence” for Clinton’s agenda, given that growth isn’t spectacular, he said.