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October 30, 2019 Blog 1 min read
Despite slowing global growth, trade uncertainty, and turmoil in Washington, the economy powered forward in the third quarter, extending the expansion.
10-30-19 GDP chartThe first look at third quarter GDP was expected to confirm that the negative impact of slowing global growth, trade policy uncertainty, and a sharp decline in the manufacturing sector would weigh heavily on growth. Those factors notwithstanding, the economy appears to have weathered the storm better than anticipated. Growth slowed slightly from the 2.0% pace in Q2 to an estimated 1.9% in Q3, but a resilient consumer sector came through once again.

Consumers continued to spend at a solid clip, supported by a strong labor market and strong investment returns supporting household balance sheets. Wage growth remains a bit sluggish, but income gains have been enough to provide the fuel needed for spending growth. Growth in personal consumption expenditures – the largest piece of the economy, representing household spending – grew at a solid 2.9% annualized clip for the quarter.

Far and away, consumers remain the primary growth engine for the economy, and one that is critically important as business investment remains weak in the face of lingering uncertainty on trade policy, among other concerns.

Business investment has been sluggish over the past six months in particular, but the slowdown has accelerated in recent months. Investments in buildings contracted at a faster pace in the third quarter, while investments in equipment slipped into negative territory. Inventories were effectively flat.

Conversely, government spending proved to be supportive, particularly Federal nondefense spending, which grew at a 5.2% pace.

All things considered, the results are a poignant reminder of the resiliency of the U.S. economy and consumers. While various measures of the consumer mood have slipped in recent months, consumers remain relatively optimistic by historical standards, buoyed by low unemployment, higher wages, and continued strength in the jobs market.

That upbeat mood coupled with income growth has been the key to households keeping their pocketbooks open, and that spending has been the linchpin to keeping the wheels on the economic wagon.

Looking broadly, it’s clear that recession risks have risen. Still, strong labor markets, improving financial conditions, and the Fed’s willingness to reverse course and trim policy rates remain supportive of the expansion. The economy isn’t out of the woods – far from it – but rumors of the expansion’s demise may be premature.
Disclosures

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.