Our economy has been growing at a blistering pace this year.
U.S. GDP came in at a better-than-expected rate of 3.5% for the third quarter. The Bureau of Labor Statistics reported another 250,000 jobs in October 2018, which was way above forecasts for 190,000.
In addition, the number of employed Americans has never been higher at 156,562,000. Even wages and salaries rose 3.1% in the third quarter, the biggest increase in a decade, according to the Labor Department.
Granted, unemployment remained at 3.7%, but this is the lowest rate since 1969.
However, as strong as the U.S. economy has been, we face considerable headwinds abroad.
Global Economies are Slowing
Economic output in Japan and Germany contracted in the last quarter, and consumer spending in China pulled back to its slowest pace in months.
“You’ve seen a bit of a slowdown—not a terrible slowdown,” Federal Reserve Chairman Jerome Powell says, as quoted by The Wall Street Journal. “It is concerning.”
Germany said its GDP contracted at a 0.8% annualized rate in the third quarter, the first quarterly drop in three years, and the lowest rate since early 2013.
In addition, the euro zone economy only grew 0.7% -- its weakest showing since 2013.
Even Japan’s economy shrank to a pace of 1.2%, after expanding 3% in the last quarter.
Then again, some of these slowdowns couldn’t be avoided.
One-time events such as the typhoon and earthquake that hit Japan played a big role in its slowdown.
Bottlenecks at German auto plants, associated with new emission standards, were an issue that caused. new car registrations in Germany to fall 30%, as manufacturers adjust to the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP). In fact, most of Europe is struggling with WLTP.
“The main cause is still the introduction of the new WLTP emissions test on Sept. 1, which resulted in an exceptional surge in registrations over the summer. As a result, demand for new cars fell in most EU countries last month, including the five major markets," reported MarketWatch.
However, one of the most common denominators hurting global growth are tariffs. Economists and executives have warned that tariffs are hurting businesses, and there are concerns it could weigh on investor sentiment, too.
While a global slowdown certainly could thwart U.S. growth, we must also consider that there are hopes for cooling trade war tensions, when the U.S. and China meet ahead of the G20 later this month.
In addition, the U.S. economy is still being boosted by strong consumer spending and confidence, on the heels of record low unemployment rates and higher wage growth.
The Wall Street Journal notes, “The U.S. is somewhat insulated from an international slowdown because its exports are only about 12% of gross domestic product, compared with a global average of about 29% and even higher in Germany, meaning the U.S. is less exposed than most countries when the global economy weakens.”
In short, while there are global economic headwinds, many seem to be temporary. We don’t think these concerns will have a severe, long-lasting impact to the U.S. economy, primarily because of the tax cuts and rollback of overly stringent regulations.