New York Times - Business

U.S. Economy Grew at 3% Rate in 3rd Quarter, Despite Storms

“There are no real headwinds to growth for the first time since the expansion began,” said Mark Zandi, the chief economist of Moody’s Analytics. “We are at full employment and we are in full swing, let the good times roll.”

Some Republicans are already pointing to the recent expansion as proof that tax cuts could push the growth rate above 3 percent for years to come — and that just the prospect of that happening is already having an effect.

Mr. Trump made economic growth a political flash point during his campaign and has continued to do so since taking office, promising to reach heights that eluded his predecessor.

“On a yearly basis, as you know, the last administration, during an eight-year period, never hit 3 percent,” Mr. Trump said during a speech in Missouri in August. Touting a strong quarter in the spring, when growth hit 3.1 percent, the president suggested that “we’re really on our way” to sustaining that speed year-round.

The economy is experiencing its fastest growth spurt in two consecutive quarters since 2014, but economists say it is highly unlikely that growth for the year will reach 3 percent. The first quarter was tepid, and projections for the current quarter hover around 2.8 percent.

The figures released on Friday also highlight the fine line Republicans are walking in selling their tax policy: They are celebrating faster growth while claiming tax reform is needed to accelerate it further.

Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee, said in a statement on Friday that the Commerce Department data “reinforces the resilience of the American people.” Republicans, he added, “will deliver on our tax reform promise this year — ushering in a new era of growth.”

Kevin Hassett, the chairman of the White House Council of Economic Advisers, asserted on Friday that companies were investing more, and driving growth higher, in expectation of a tax cut. Failing to pass a tax bill, he said, would cause growth to slump and markets to tumble.

“If you look at the G.D.P. data, it’s clear that is a major reason why capital spending has increased,” he said, referring to expectations of a tax cut. “If those expectations appear to be incorrect, I would expect capital spending to go back into decline.”

For now, economists are reluctant to give Congress or the administration too much credit for the economy’s trajectory.

“There hasn’t been anything concrete in terms of spending or tax cuts that we can point to that’s fueling the acceleration,” said Scott Anderson, chief economist at Bank of the West in San Francisco. If anyone deserves credit for the good news, he said, it’s the Federal Reserve chairwoman, Janet L. Yellen.

Ms. Yellen, whose four-year term ends in February, has pursued gradual increases of the Fed’s benchmark interest rate in an effort to steer the economy toward steady growth without overheating. The Fed is expected to raise rates when it meets in December. Mr. Trump is publicly weighing whether to replace Ms. Yellen, considering two possible successors, but has also signaled that he may decide to renominate her.

“Markets would probably applaud her reappointment,” Mr. Anderson said.

Personal consumption, although down from the previous quarter, grew at a 2.4 percent rate, and nonresidential fixed investment, a measure of business spending, expanded at a robust rate of 3.9 percent. Mr. Zandi said the numbers were “a sign that consumers are hanging tough.”

At the same time, with a weak dollar making American goods more competitive abroad, international trade contributed positively to output for the third quarter in a row. Imports decreased.

Spending on equipment increased at a rate of 8.6 percent, as companies poured money into capital improvements. Businesses may be investing in computers and industrial equipment in response to a tight labor market and rising wages, economists said.

“Businesses are going to be looking for more ways to produce than just adding bodies,” Mr. Anderson said.

Hurricanes can disrupt an economy in obvious ways — ruining homes, incapacitating infrastructure, and slowing the flow of goods across the country. The Houston metropolitan area is the country’s fifth largest, accounting for 3 percent of national economic output, and the severe flooding brought on by Hurricane Harvey had an immediate impact on employment. The country’s economy shed 33,000 jobs in September, the first monthly drop in seven years.

But after the negative shock dissipates, the recovery from an extreme weather event can help the economy by creating new reasons for consumer spending, which represents roughly 70 percent of national output. After the damage is done, people must often rebuild their homes or replace their cars, an effect that began to show up in the third quarter and will most likely continue through the end of the year.

“If you don’t go out to eat during a hurricane, maybe you bought plywood for your house,” said Robert Dye, chief economist at Comerica Bank. “If you have the insurance and support, that tends to be a stimulus to the economy.”

Hurricanes Harvey and Irma left 600,000 to one million vehicles needing replacement, according to Cox Automotive, and Americans rushed to dealerships to recoup what they had lost. Car sales spiked in September, reaching their highest level since 2005.

The growth figure released on Friday was the government’s first estimate of economic output for the quarter, and it will be revised twice. It can be hard to accurately measure the full effect of a natural disaster immediately after it occurs, and so these numbers could swing up or down when the department revisits the period.

Chasing Growth

The United States has been a pace setter among developed economies, but Europe is no longer a laggard.

Annual rate of change in G.D.P.

The American economy has performed considerably better this year than in 2016, when it grew at a halting 1.5 percent. And things have been looking up, economically, for much of the world, which is enjoying a rare moment of widespread expansion. The International Monetary Fund upgraded its forecast for the pace of world growth twice this year.

“This is happening globally,” Mr. Zandi, the Moody’s economist, said. “There isn’t a single major economy that is in recession.”

A weak dollar has been a boon to exporters like David Ickert, vice president for Finance at Air Tractor Inc. The company, which is based in Olney, Tex. a town of about 3,100 people west of Dallas, makes crop dusters and forestry firefighting planes for markets including European countries along the Mediterranean Sea, sub-Saharan Africa and South America. Half of its sales are international.

“Things are picking up — I sense it in Europe,” Mr. Ickert said. He emphasized that the positive impact of trade at a broad level filters down to rural communities. “Trade helps create and sustain jobs in small-town America with a small business,” he said.

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