WASHINGTON — The U.S. economy cooled over the summer, growing at a 1.9 percent annualized pace from July through September, the latest sign that the slowdown is deepening.
The data, released Wednesday morning by the Commerce Department, came as economists anticipated slightly weaker growth following President Donald Trump’s decision to dramatically expand his trade war with China in early August. That decision spooked business leaders and deterred them from making major investments during a period of so much uncertainty.
Consumer spending continues to power the economy, but business investment has now contracted for six straight months, falling 3 percent in the third quarter, the biggest drop since the end of 2015. A number of companies have said they are pulling back because of economic uncertainty, particularly related to whether trade rules will be shifting with China and other countries. Spending on both structures and equipment was deeply negative.
Slow growth abroad and problems at big employers such as Boeing and General Motors also were a drag on growth. Tens of thousands of workers went on strike at GM in September, halting most production at the company. And Boeing, the U.S.’s largest exporter, remains under pressure after two fatal crashes of its 737 Max jets in the past year.
After revving to 2.9 percent growth in 2018, the U.S. economy appears to be settling into the slower pace that it notched during the final year of the Obama administration. Trump vowed during his presidential campaign that he could boost the economy to around 4 percent growth, a level not seen in years. He has also promised at least 3 percent growth a year, an annual pace he has yet to achieve.
But the consensus view is that the economy is shifting to a lower gear. Still, the sustained pace suggests it is unlikely to dive into a recession anytime soon, unless there is a major shock or the trade war worsens significantly. Low unemployment, rising wages and high stock prices have helped fuel consumer spending. Higher federal government spending also provided some lift to growth, helping offset the business investment decline.
“The consumer is still the main engine of economic growth, plus federal government spending. The nation just capped off a year of nearly a trillion-dollar deficit. Not surprisingly, all this federal spending is showing up in the GDP numbers,” said Stuart Hoffman, senior economic adviser at PNC Financial Services Group.
After a weak second quarter, White House officials predicted a big rebound in the second half of 2019. White House officials believe they are close to big breakthroughs in two separate trade efforts, one with China and another with Canada and Mexico. But most economists predict more subdued growth is here to stay.
“As the benefits of fiscal stimulus fade and trade policy uncertainty and slowing global demand remain headwinds to business investment, U.S. GDP growth should continue to moderate in coming quarters,” Sam Bullard, chief economist at Wells Fargo, wrote in a note to clients. “That said, we view recession in the near-term as still unlikely.”
Trump’s economic agenda has resulted in tax cuts, deregulation, trade fights and spending increases. He and top aides have said this approach would lead to a major acceleration in economic growth, which had slowed markedly during President Barack Obama’s last year in office. The unemployment rate has fallen since Trump’s election from 4.7 percent to 3.5 percent, consumer confidence and spending are strong, and the stock market reached a new all-time high this week.
But other measurements of the economy have shown weakness.
Many business leaders and economists believe Trump’s strategy helped fuel new business investment through most of last year, but concerns about trade fights with China and Europe have led many companies to pull back, especially in the past six months. The July through September period marks marks the second time since Trump took office that quarterly growth has fallen below 2 percent.
“The capital spending numbers were awful, and a bit worse than we expected, with structures investment — oil rigs, offices, factories, commercial premises — plunging 15.3 percent,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Trump has continued to celebrate any good economic news, including the stock market record this week, and blame any weak numbers on Democrats and the Federal Reserve, the institution he says choked growth by keeping the cost of borrowing too high. The Fed was widely expected to make a modest cut to interest rates at 2 p.m. Wednesday.
“The Greatest Economy in American History!” Trump tweeted Wednesday morning, less than an hour before the Commerce Department’s report on economic growth. On Tuesday he tweeted that “The Fed doesn’t have a clue! We have unlimited potential, only held back by the Federal Reserve. But we are winning anyway!”
Trump was far more critical of slower growth when Obama was president. In May of 2012, he tweeted, “Q1 GDP has just been revised down to 1.9%. The economy is in deep trouble.”
The U.S. economy is in the midst of its 11th straight year of growth, making this the longest expansion in the nation’s history.
During Trump’s term in office, the economy has grown at an annual pace of around 2.35 percent, after accounting for the effects of inflation and other factors. If that pace were to continue, it would edge past George W. Bush’s first term and Obama’s second to become the fastest term of growth since Bill Clinton’s presidency.
But Trump’s claim that the growth is the best in U.S. history is not accurate. In the recent past, Clinton and Ronald Reagan each oversaw two terms of growth above 3 percent a year. Growth of at least 2 percent has been the norm for decades — the U.S. typically hits that mark in two out of every three quarters.
“An economy growing at 1.9 percent is in line with the long-term trend growth of the United States. If you’re an economist or Wall Streeter, you are fine with that. However, if you are a politician that promised sustained growth over 3 percent, this level of growth is a political recession,” said Joseph Brusuelas, chief economist at audit firm RSM.