U.S. Economy: No Imminent Recession But a Warning Nonetheless
Overall real GDP during the third quarter grew at a 1.9 percent annual rate
GDP growth for the third quarter came in slightly slower than was recorded for the spring quarter, continuing a six month deceleration from the strength the economy showed coming into this year. Though this picture is far from the strong economy promised by the real growth surge witnessed in 2017 and 2018, it would be a mistake to extrapolate the slowing trend into a near-term forecast of recession. The report, however, by recording weakness in capital spending, does contain an ominous sign for the longer run, and that deserves the attention of all.
The overall picture, though far from strong, is hardly threatening. Overall real GDP during the third quarter grew at a 1.9 percent annual rate, hardly much difference from the 2.0 percent annual rate averaged in the spring quarter. Though quite a bit slower than the 3.1 percent growth recorded in the opening quarter of the year, this latest figure is far stronger than the 1.1 percent growth rate averaged in 2018’s final quarter. Abstracting away from the distorting effects of retailers and wholesalers as they build and sell off their inventories from one period to the next, the so-called “final sales” figure of GDP offers a similar picture of speedups and slowdowns. The 1.9 percent real growth in final sales during the summer quarter (in this case the same as overall real GDP) fell far short of the 3.0 percent averaged in the spring quarter and the 2.6 percent averaged in the first quarter. It nonetheless looks impressively strong next to the 0.7 percent annual rate averaged during last year’s second half. What both these measures show is that the economy has strength and weakness from one period to the next but on balance offers solid if somewhat disappointing real growth.
Other aspects of the report also warn against any rush to forecast recession. Such a dire event is not likely to occur while the household sector remains strong — and it is indeed strong. The Commerce Department reports that real consumer spending, more than two-thirds of the entire economy, increased at almost a 3.0 percent annual rate during the summer quarter — down to be sure from the powerful 4.6 percent rate averaged during the spring quarter but far above the 1.2 percent rate of advance averaged during the prior six months. More significantly, real household income after-tax grew at almost a 3.0 percent annual rate during the summer quarter, an acceleration from the 2.4 percent pace of the spring quarter, both because more people are working and because hourly and weekly wages rose over this time. With households still saving over 8 percent of their after-tax income, this latest raft of figures suggests that personal finances have actually strengthened during this most recent period, though specifics will have to wait for a Federal Reserve report due out in another month or so.
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