Third quarter GDP clocked in at 3.5%, beating analysts’ projections of 3.4%. Granted, that number is lower than the previous quarter’s 4.2%, but with unemployment at a multi-year low and consumer spending at a healthy clip, the U.S. economy is still chugging along quite nicely.
In fact, the past 6 months mark the strongest consecutive quarters of growth since 2014. That growth proves that the economy is on solid footing, despite recent hiccups in global markets.
Consumer spending, which accounts for more than two thirds of U.S. economic activity, grew by 4% in the third quarter, the highest rate since the fourth quarter of 2014.
However, some don’t think the growth can last.
“It remains to be seen how long the spending spree can continue,” said Sung Won Sohn, chief economist at SS Economic, as quoted by Reuters. “The stimulus from the tax cut has plateaued. Rising interest rates and volatile stock markets are having a psychological as well as a real effect.”
Others argue that the impact of the China-US trade war, coupled with rising interest rates could slow growth into 2019 to around 2.4%. All because China and the U.S. have slapped tariffs on billions of dollars’ worth of goods, increasing fears that tighter trading conditions will slow down the global economy.
In addition, higher interest rates are beginning to restrict business investment. President Trump has complained that the Federal Reserve’s interest rate hikes are undermining his efforts to spur further growth.
For example, business investment in the third quarter only grew 0.8%, as residential investment fell by 4%. We are also seeing a slowdown in housing sales, as well.
"Higher rates are now clearly squeezing some of the most rate-sensitive components of spending," Capital Economics said, as quoted by CBS. The firm expects GDP growth to slow to 2% by next year.
Others are concerned about slowing corporate revenues.
Third-quarter corporate earnings have been positive, with 80% of companies exceeding expectations. However, sales performance has been more mixed, with more than a third of firms so far missing revenue projections. It is a trend that amplifies some investors’ concern that U.S. economic growth may have peaked earlier this year, says The Wall Street Journal.
Currently, there’s a mixed bag of issues to contend with. However, despite all of the headwinds, this is the strongest U.S. economy we’ve seen in quite some time.
Stay tuned to The Cheap Investor for more. And be sure to read the November 2018 issue of The Cheap Investor out now.