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What Will Today’s G.D.P. Reading Show? Here’s a Preview G.D.P. Grew at 1.9% Rate in Quarter, a New Sign of Slowdown
(32 minutes later)
The Commerce Department will release its initial estimate of the gross domestic product — the broadest measure of goods and services produced in the economy — for the third quarter at 8:30 a.m. on Wednesday. Here’s what to watch for:
Wall Street analysts expect the figures to show that the economy grew at an annual rate of 1.5 percent over the summer, down from 2 percent in the spring. Dogged by uneasiness over trade frictions and weak global growth, the American economy continued to slow over the summer.
Policymakers at the Federal Reserve are likely to end their two days of meetings in Washington on Wednesday afternoon with an announcement that the central bank will once again drop its benchmark interest rates, a preventive tactic meant to stop a slowdown from turning into a slide. Gross domestic product — the broadest measure of goods and services produced in the economy — grew at a 1.9 percent annual rate for the third quarter, according to preliminary data released by the Commerce Department on Wednesday. Wall Street analysts had forecast a gain of 1.5 percent.
The year started out with a surge as the economy expanded at an annual rate of 3.1 percent during the first three months, but the pace of growth declined in the second quarter. If the slowdown continued across July, August and September, it would be the first time in a decade that the growth rate fell for two consecutive quarters. Lydia Boussour, senior United States economist at Oxford Economics, said it was “unusual to have back-to-back retraction outside of a recession.” The year started out with a surge, but the pace of growth declined in the spring and again over the period that spanned July, August and September, the first time in a decade that the growth rate has fallen for two consecutive quarters.
Trade frictions and weak global growth are stirring up the greatest unease. Torsten Slok, chief economist at Deutsche Bank Securities, noted that business investment, chief executives’ confidence, export orders and more were all slowing. “The trend is not your friend in this data,” he said. Policymakers at the Federal Reserve are expected to end their two days of meetings in Washington on Wednesday afternoon with an announcement that the central bank will again drop its benchmark interest rate to prevent a slowdown from turning into a slide.
Other analysts, though, emphasized that the economy remained rooted in solid ground. “If I saw cracks in the consumer sector, I would be worried, but I don’t see that yet,” said Ben Herzon, executive director of United States economics at Macroeconomic Advisers, a forecasting firm. Consumer spending accounts for the largest chunk of G.D.P. by far, and that sector, he said, is in “good shape.” “We are expecting the Fed to lower rates,” said Lydia Boussour, senior United States economist at Oxford Economics. “I think there is a stronger case now than just a few months ago.”
Up or down, the G.D.P. report is unlikely to persuade the Fed to swerve away from lowering rates. Other analysts emphasized that the economy remained rooted in solid ground. “If I saw cracks in the consumer sector, I would be worried, but I don’t see that yet,” said Ben Herzon, executive director of United States economics at Macroeconomic Advisers, a forecasting firm.
Economic activity suffered somewhat from a strike by workers at General Motors that began in the final two weeks of the quarter, halting production nationwide. Troubles at Boeing, the nation’s largest aerospace manufacturer and its largest manufacturing exporter, have also nibbled away at output. The company’s 737 Max has been grounded after two calamitous crashes, and deliveries of planes coming off the assembly line have largely halted. Consumer spending accounts for the largest chunk of G.D.P. by far, and that sector, he said, is in good shape.
Mr. Herzon at Macroeconomic Advisors characterized those developments as temporary. Businesses that have stepped back from building their inventories, he argued, will also reverse course soon. Third-quarter growth suffered a bit from a six-week strike at General Motors that halted production. Troubles at Boeing, the nation’s largest aerospace manufacturer and its largest manufacturing exporter, have also nibbled away at output. The company’s 737 Max has been grounded after two calamitous crashes, and deliveries of planes coming off the assembly line have largely halted.
Just how well the economy is doing will help shape campaign narratives for the 2020 presidential election. President Trump has repeatedly highlighted the economy’s performance as evidence that his recipe of tax cuts, deregulation and confrontational tactics on trade is working. The annual growth rate, though, has fallen short of the president’s repeated promise that it would surpass 3 percent, or even 4 percent. Mr. Herzon sees those as temporary developments. And businesses that have stepped back from building inventories, he argued, will reverse course soon. “The economy is not slowing into a recession,” he said.
In July, the White House predicted that growth would hit 3.2 percent in 2019 and remain at 3 percent or above for the next five years. That sunny outlook is far more optimistic than those of the Fed, the Organization for Economic Cooperation and Development and most Wall Street analysts. Most forecasts hover around the 2 percent mark — a rate that many economists consider sustainable over the long haul, but one that Mr. Trump scorned in his 2016 campaign. The economic data will help shape campaign narratives for the 2020 presidential election. Democratic candidates have focused not just on the total size of the economy, but also on how its rewards are distributed.
Whatever the growth rates, expect Democratic candidates to focus not just on the total size of the economy, but also on how its rewards are distributed. President Trump has repeatedly highlighted the economy’s performance as evidence that his recipe of tax cuts, deregulation and confrontational tactics on trade is working.
The annual growth rate, though, has fallen short of the president’s repeated promise that it would surpass 3 percent, or even 4 percent. In July, the White House predicted that the figure would hit 3.2 percent in 2019, and remain at 3 percent or above for the next five years.
That outlook is far more optimistic than those of the Fed, the Organization for Economic Cooperation and Development and most Wall Street analysts. Most forecasts hover around the 2 percent mark — a rate that many economists consider sustainable over the long haul, but one that Mr. Trump scorned in his 2016 campaign.
[Read more: Americans’ views of the economy have become so hardened along partisan lines that it may matter less in next year’s presidential election than in the past.][Read more: Americans’ views of the economy have become so hardened along partisan lines that it may matter less in next year’s presidential election than in the past.]
Though hearty annual growth rates were common for most of the postwar era, the economy has not expanded by 3 percent or more in a full calendar year since 2005.
Growth figures can swing from one quarter to the next, and the Commerce Department will revise this latest result twice more, as more data comes in.
Other parts of the economy have demonstrated a reassuring sturdiness. Although the number of jobs created each month has drifted down, for instance, the jobless rate is still at its lowest point in decades. And the stock market continues with regular bursts of enthusiasm like the record high the S&P 500 reached Monday.
Word from Mr. Trump that the United States and China are close to completing what he calls “Phase 1” of an agreement helped calm some of the roiling anxiety swirling around trade relations. But there have been no substantive details on what a pact would include, and analysts remain wary that this potential breakthrough, like previous ones, could be followed by an abrupt policy reversal from the White House.Word from Mr. Trump that the United States and China are close to completing what he calls “Phase 1” of an agreement helped calm some of the roiling anxiety swirling around trade relations. But there have been no substantive details on what a pact would include, and analysts remain wary that this potential breakthrough, like previous ones, could be followed by an abrupt policy reversal from the White House.
“This ‘Phase 1’ thing is trivial compared to enormous obstacles,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He noted that summertime shopping might have been given an artificial lift by importers who rushed to bring in goods from China before tariffs were scheduled to increase in September. But that short-term gain, he warned, could mean a falloff in the next three months. “There’s been a big drop in business confidence, across the board,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “This ‘Phase 1’ thing is trivial compared to enormous obstacles.”
For Cris deRitis, deputy chief economist at Moody’s Analytics, the biggest risks to the economy are “uncertainty and complacency.” Summertime shopping might have been given an artificial lift by importers who rushed to bring in goods from China before tariffs were scheduled to increase in September, Mr. Shepherdson added. But that short-term gain, he warned, could mean a falloff in the next three months.
“With political risks and uncertainty casting a shadow across economic regions” around the world, he said in an analysis, “the potential for policy errors and significant global shocks may overwhelm solid economic fundamentals.” Grady Cope, founder and president of Reata Engineering, a design, tooling and production firm in Englewood, Colo., offered a guarded outlook.
“As business owners, we’re all a little bit scared of tariffs,” said Mr. Cope, whose company has a long list of multinational customers. “China is a huge part of the global economy and the only place where some parts can be made.”
Still, he said, “business has been good.”
“We see some customers slowing down,” he said, “but not as many as we were expecting based on stuff we were hearing last year.”
During the first three months of 2019, the economy confounded downbeat prognosticators and grew at an annual rate of 3.1 percent.
As the temporary lift from tax cuts faded and hopes for a trade deal with China fell apart in the spring, growth slacked off in April, May and June. The annual rate shrank to 2 percent. Trade tensions and a slowing worldwide growth hit the manufacturing sector particularly hard. Exports fell and business investment slumped.
Worries about a recession thickened over the summer. Mr. Trump escalated his attacks on China and unleashed another round of retaliatory tariffs. Wall Street was particularly unsettled by quirky movements in the bond market that have usually been associated with recessions. Industrial activity around the globe stalled.
The manufacturing outlook has improved since then, and housing sales in the United States have picked up.
“The biggest risks to the economy today are uncertainty and complacency,” Cris deRitis, deputy chief economist at Moody’s Analytics, said in an analysis. “With political risks and uncertainty casting a shadow across economic regions” around the world, he added, “the potential for policy errors and significant global shocks may overwhelm solid economic fundamentals.”