The U.S. economy, which only recently was flashing warning signs of a sharp slowdown, should finish the year in better shape, thanks to rate cuts from the Federal Reserve and a cease-fire in the U.S.-China trade war.
The Commerce Department said Friday that the gross domestic product, the economy’s total output of goods and services, grew at a moderate annual rate of 2.1% in the third quarter.
That was unchanged from the government’s previous estimate for activity in the July-September quarter although some of the components were revised. Consumer spending, which accounts for 70% of economic activity, grew at a stronger 3.2% pace, reflecting more spending on personal services such as beauty care, up from a previous estimate of 2.9% growth.
This boost was offset by a weaker reading for business inventory restocking.
Economists, who had been worried growth might all but disappear in the current October-December quarter, now believe the GDP is growing around 2% in the current quarter as well and are looking for that moderate pace to be sustained in the early part of 2020.
While 2% growth is below the gains of 3%-plus growth President Donald Trump has promised, it is far better than the recession many analysts feared could occur just a few months ago when financial markets were being roiled by rising tensions in the U.S.-China trade dispute and a global economic slowdown.
For all of 2019, the expectation is GDP growth will come in at 2.3%, down from the 2.9% gain achieved in 2018, the best since 2015. For 2020, analysts believe growth will slow further to 1.8% as the boost from the $1.5 trillion tax cut measure passed in 2017 fades further.
The economy is getting help from a phase one trade deal announced last week that should cool tensions between the United States and China. That announcement has helped push stock markets to new highs with rising optimism helped by better economic data of late. The economy gained 266,000 jobs in November with unemployment at a half-century low of 3.5%.
Three rate cuts by the Fed this year, after four rate hikes last year, has helped fuel the rebound and a budget agreement passed this week is expected to shower billions of dollars in increased spending on the military and domestic programs in the coming year, helping to support growth.
But even with those gains, analysts are forecasting that growth will slow further in 2020, hurt by such factors as continued uncertainty about future trade negotiations with China, a temporary halt in production of Boeing’s troubled 737 Max.
Another headwind could be the 2020 presidential election which is expected to raise business anxiety about the future course of government policies given the sharp differences between Trump and his Democratic challengers.
‘”I think next year is shaping up to be a rather pedestrian economy,””said Mark Zandi, chief economist at Moody’s Analytics. “’it will be creating enough jobs to avoid a recession but still job growth will be slowing compared to this year.”
Martin Crutsinger, The Associated Press
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US Treasury Secretary Steven Mnuchin attends a session at the Congres center during the World Economic Forum (WEF) annual meeting in Davos, on January 21, 2020.
FABRICE COFFRINI | AFP via Getty Images
The strength of the U.S. economy will prove to be an important factor when voters head to the polls in November, according to U.S. Treasury Secretary Steven Mnuchin, despite a slew of headwinds that could weigh on growth this year.
Mnuchin warned earlier this month that U.S. growth may not hit Trump’s pledged 3% growth in GDP (gross domestic product) in 2020.
Speaking to CNBC at the G-20 Summit in Riyadh, Saudi Arabia, on Sunday, Mnuchin said disruptions at Boeing could cause a 50 basis point drag on growth, compounded by General Motors strikes and the potential impact of the coronavirus outbreak.
“But the real impact in terms of the American economy, wages are going up, more jobs are being created and more people are coming back into the workforce than ever before,” Mnuchin told CNBC’s Hadley Gamble.
“(GDP) is a global statistic, the statistic people really care about is are they working, are they getting more jobs, are they getting more pay? And on that basis, we’re getting all As.”
U.S. unemployment recently hit a 50-year low, continuing a consistent downward trend set in motion in 2010. Real average hourly earnings for all private nonfarm employees increased 0.6% from January 2019 to January 2020, according to the U.S. Bureau of Labor Statistics.
“The change in real average hourly earnings combined with a 0.6-percent decrease in the average workweek resulted in essentially no change in real average weekly earnings over this period,” the Bureau said in a report Friday.
Mnuchin told CNBC he saw the economy being a very “strong factor” in the president’s re-election. “And as you look at the U.S. economy relative to the world economy, the U.S. is the bright spot on world growth,” he said.
China braces for inevitable big hit to economy from virus, says Xi – Financial Post
BEIJING — China will step up policy adjustments to help cushion the blow on the economy from a coronavirus outbreak that authorities are still trying to control, President Xi Jinping was quoted as saying on Sunday.
The situation is showing a positive trend after arduous efforts but there is no room for “weariness and relaxed mentality” among officials, state television quoted him as saying.
“At present, the epidemic situation is still severe and complex, and prevention and control work is in the most difficult and critical stage,” Xi said.
“The outbreak of novel coronavirus pneumonia will inevitably have a relatively big impact on the economy and society,” Xi said, adding that the impact would be short-term and controllable.
The outbreak is one of the most serious public health crises to confront Chinese leaders in decades.
“For us, this is a crisis and is also a big test,” Xi said.
Chinese policymakers have implemented a raft of measures to support an economy jolted by the virus, which is expected to have a devastating impact on first-quarter growth.
Low-risk provinces should focus on restoring work and production in an all-round way, provinces with medium-level risks should aim for an orderly work resumption, while high-risk regions should focus on epidemic controls, Xi said.
The government would step up policy support to help achieve economic and social development targets for 2020, Xi said.
China would maintain a prudent monetary policy and roll out new policy steps in a timely way, he said, adding the government would also study and roll out phased tax cuts to help tide small firms over difficulties.
The government would also take steps to support flexible employment and help college graduates to find jobs, Xi added. (Reporting by Yingzhi Yang and Kevin Yao; Editing by Frances Kerry and Alex Richardson)
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