ARLINGTON, Va.—The economy again reported robust performance numbers and economists again suggested a “slowdown is looming.”
According to the Commerce Department, the economy grew 3.5% in the third quarter, beating the expectations of many. But the Wall Street Journal said its survey of economists found most estimate the growth rate will slow to 2.5% by the first quarter of next year and 2.3% by the third quarter of 2019. The Fed is expecting growth to slow further to a 1.8% rate by 2021.
“We think U.S. growth may have just peaked,” Michael Gapen, chief U.S. economist for Barclays Capital, told the Journal.
The latest data show growth remained strong throughout Q3 as consumer spending rose at the fastest pace (more than 4%) in nearly four years, NAFCU Chief Economist and Vice President of Research Curt Long noted in a NAFCU Macro Data Flash report.
Government spending growth also accelerated (+3.3%) while businesses stocked up on inventories (+76.3 billion). However, nonresidential investment barely changed (+0.8%) following strong growth in the first half of the year. Residential investment dragged growth for the third consecutive quarter (-4%) while net exports declined amid international trade tensions ($-939 billion).
Tax Cuts’ Effects Starting to Wane
"While business confidence remained high, investments on structure and equipment moderated amid growing trade concerns," Long added. "This also suggests that the stimulative effects from the tax cuts are starting to wane."
Contributions to growth of real GDP came from gains in personal consumption expenditures (+2.69%), inventory accumulation (+2.07%), government spending (+0.56%) and nonresidential investment (+0.12%). Net exports reduced growth 1.78%, followed by residential investment (-0.16%).
Personal consumption expenditure (PCE) inflation, the Fed's preferred inflation metric, decreased from 2% in the second quarter to 1.6% in the third quarter. Meanwhile, core PCE inflation (excluding food and energy) decreased from 2.1% to 1.6%, Long noted.
The economy grew 4.2% in the second quarter.