The economy seems to be losing some overall steam in today’s advance estimate of economic growth for the third quarter, but the real problems might be in the details. The gross domestic product grew at only a 1.9% annualized rate, the third time in the last four quarters that it hit at or below 2.0%. That portends potential issues in Donald Trump’s re-election:
Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the third quarter of 2019 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent.
The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The “second” estimate for the third quarter, based on more complete data, will be released on November 27, 2019. …
The deceleration in real GDP in the third quarter reflected decelerations in PCE, federal government spending, and state and local government spending, and a larger decrease in nonresidential fixed investment. These movements were partly offset by a smaller decrease in private inventory investment, and upturns in exports and in residential fixed investment.
Two numbers jump out from the tables in this report — personal consumption expenditures (PCEs) and gross private domestic investment. The first number, which coverall all consumer spending, dropped sharply from the previous quarter from 4.6% increase to 2.9%. That’s still above the two quarters previous, but it’s a signal that Q2’s big boost may not last. It’s not a bad number — objectively speaking, it’s pretty good — but it’s slightly below 2018’s 3.0% annual growth in PCEs, and the direction is certainly not what the Trump administration wants to see.
The numbers for private domestic investment are objectively poor, however, and especially since Q2 showed a contraction of 6.2% already. This quarter isn’t quite as bad at -1.5%, and both residential structures (5.1%) and intellectual property (6.6%) grew at a decent clip; it was the first growth in residential property in almost eight quarters. However, business investment in structures (-15.3%) and equipment (-3.8%) show a lack of confidence in the economy, especially the former, which also declined -11.1% in Q2.
The Wall Street Journal notes both trends in its analysis, while also pointing out that economists expected it to be a little worse overall:
Economists surveyed by The Wall Street Journal expected a 1.6% growth reading for the third quarter.
The stronger-than-expected growth rate was boosted by government and consumer spending, residential investment and exports. That was partly offset by an drop in business investment.
The report showed the divergence between relatively solid consumer spending and falling business investment continued from the second quarter into the third, as the long-simmering trade war with China escalated.
To the political point, CNN points out that these numbers look an awful lot like GDP reports in the Obama administration. The Fed will likely make a cut to interest rates, they point out, but White House trade adviser Peter Navarro blames the Fed for losing a full point off of these GDP reports:
— CNN (@CNN) October 30, 2019
There may be a lot of things the economy needs, but a permanent quantitative easing is almost certainly not among them. Ending the trade war would provide a much more salutary and long-lasting benefit, at least if it concludes with real reforms to China’s business practices, and there is still areas of deregulation which the Trump administration could make improvements … if it can work with Congress, which seems hopeless for the moment.
Barring either of those, Trump may limp into the next election cycle with an impeachment on his back and Obama-esque growth numbers to defend. That’s not going to suffice for incentivizing working-class turnout, especially if wage growth continues to stall as it did in September. The next jobs report will come out on Friday, and the White House had better hope that it shows a spark of real life.