Economic Growth Predictably Falls Back Down to Earth

JM Ashby
Written by JM Ashby

Economic growth accelerated to 4.2 percent during the second quarter of the year because businesses at home and abroad rushed to import and export as much as they possibly could before Trump's trade war hit the books.

We're way beyond that point now and initial estimates suggest the economy grew at a more reasonable rate of 3.5 percent during the third quarter of the year.

Gross domestic product increased at a 3.5 percent annualized rate also supported by a surge in inventory investment and solid government spending, the Commerce Department said on Friday in its first estimate of third-quarter GDP growth. While that was a slowdown from a 4.2 percent pace in the second quarter, it still exceeded the economy’s growth potential, which economists put at 2 percent.

Compared to the third quarter of 2017, the economy grew 3.0 percent, the best performance since the second quarter of 2015.

But business spending stalled and residential investment declined for a third straight quarter, potential red flags to the economic expansion that is now in its ninth year and the second longest on record.

Commerce Department data shows that Trump's trade war weighed on the economy during the third quarter, but consumer spending increased to its highest level in four years.

Considering the broad consequences of Trump's trade war and the volatility we've seen in the market over the past month, I think it would be fair to say that the American appetite for buying lots of shit is the only thing keeping the economy afloat.

We live in a consumer-driven economy so, to a certain extent, that's to be expected, but one wonders what will happen if consumers spending slows down for whatever reason.

It would be easy to forget that Trump's tariffs on over $200 billion in Chinese goods will automatically increase from 10 to 25 percent on January 1st. No company will be able to adsorb that cost without passing it down to consumers.

I'm sure everyone that's reading this understands, but economic growth doesn't tell us everything. Just because the economy is still growing for banks does not mean it's growing for someone who can barely pay their bills. But with that said, people who can barely pay their bills tend to pay for it when economic growth stops. Shit rolls down hill.

  • muselet

    Donald Trump has taken credit for every uptick in any economic indicator. I wonder who he’ll blame when the economy slows further.

    My money (ha ha) is on the Federal Reserve (that’s an easy bet, since Trump’s already teeing up Fed chairman Jerome Powell as the bogeyman).