JAKARTA (TheInsiderStories) – The United States’ (US) economy grew by an annualized 2.1 percent in third quarter (3Q) of 2019, compared to an advance estimate of 1.9 percent and following a 2 percent expansion in the previous three-month period, according to new figures published by the Commerce Department on Wednesday (11/27).
Private inventories were revised higher and business investment shrank less than expected. On the other hand, consumer spending growth, the main engine of growth, was left unchanged and the drag from net exports was bigger than anticipated, the report showed.
Personal consumption expenditures (PCE) made the biggest contribution to growth 1.97 percentage points compared to 1.93 percentage points in the advance estimate and rose 2.9 percent the same as in the advance estimate, according to the report.
It was boosted by spending on goods 5.7 percent than 5.5 percent in the advance estimate, namely durable goods 8.3 percent from 7.6 percent, nondurables 4.3 percent from 4.4 percent and services 1.7 percent, the same as in the advance estimate.
Also, federal government spending added 0.22 percentage points to growth, the same as in the advance estimate, and advanced 3.4 percent also unchanged from the advance estimate; state and local government spending added 0.06 percentage points to growth 0.12 percentage points and rose 0.5 percent compared to 1.1 percent in the advance estimate.
Private inventories added 0.17 percentage points to growth, compared to a 0.05 percentage points drag in the advance estimate. Inventories increased at a US$79.8 billion pace instead of the $69 billion paces earlier reported, it showed.
On the other hand, fixed investment was a drag on growth (-0.18 percentage points vs -0.22 percentage points in the advance estimate) as it shrank 1 percent (vs -1.3 percent), mainly due to structures (-12 percent vs -15.3 percent), and equipment (-3.8 percent, the same as in the previous estimate).
Business investment dropped 2.7 percent, compared to a 3 percent fall previously reported. In contrast, investment in intellectual property products rose (5.1 percent vs 6.6 percent) and residential one rebounded (5.1 percent, the same as in the previous release).
Also, net external demand weighed down on growth for the second straight quarter (-0.11 percentage points vs -0.08 percentage points in the advance estimate): exports rose 0.9 percent (vs 0.7 percent in the advance estimate) and imports increased 1.5 percent (vs 1.2 percent).
The price index for gross domestic purchases increased 1.4 percent in the third quarter, compared with an increase of 2.2 percent in the second quarter. The PCE price index increased 1.5 percent, compared with an increase of 2.4 percent. Excluding food and energy prices, the PCE price index increased 2.1 percent, compared with an increase of 1.9 percent, the report showed.
A series of government reports Wednesday to cast a picture of a steadily growing US economy, fueled by solid consumer spending and defying threats, at least for now, from a US-China trade war and a global slowdown.
However many analysts worry that GDP growth is slipping in the current October-December quarter to a 1.4 percent annual rate or less as business investment weakens further. But most say the slowdown won’t likely be as severe as it might have been because consumers, who drive about 70 percent of the economy, are signaling that they will likely keep spending through the holiday shopping season and into next year.
Consumer spending gained some momentum entering the final three months of the year, with spending rising by a 0.3 percent annual rate in October, the fastest monthly pace in three months.
And in the US manufacturing sector, which has been struggling with global economic weakness and damage from the President Donald Trump administration’s trade conflicts, orders for high-cost items rebounded in October by a 0.6 percent annual rate after having declined in September.
Economists said the flurry of reports depicts an economy that is regaining its footing after absorbing threats this year, from the global slowdown to the intensifying trade war with China, which has perpetuated uncertainties for businesses. Still, the stock market has set record highs on optimism that at least a preliminary US-China trade agreement can be reached soon.
The federal government’s two primary tools to stimulate the economy, fiscal and monetary policy, maybe constrained relative to previous cycles, potentially exacerbating cyclical US public finance (USPF) funding deficits and delaying the rebuilding of the issuer reserves during and coming out of the next downturn, says Fitch Ratings.
Policymakers may be more limited in the future to confront a future slowdown in the economy. Over the past four recessions, short-term interest rates fell by over five percentage points shortly before the onset of the recession to the low point experienced after the trough or during early recovery, it said.
Currently, Fitch Ratings sees Treasury yields through the intermediate part of the curve are less than 2 percent, so such a decline would imply interest rates of between negative 3.5 percent and negative 4 percent, which is virtually impossible.
“Consequently, considering even slightly negative rates as the floor, rates can fall less than 2 percent at most, less than half the average decline relative to past recessions, to help confront a recession and spur consumer and business demand,” it concluded.
Written by Lexy Nantu, Email: email@example.com