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Government Reports Strong Economic Growth In Third Quarter, But It’s Unlikely To Last

Economy Heartbeat

The latest report on economic growth in the third quarter of 2016 shows that the economy was moving at a strong pace in the late summer, but it’s unclear how long that’s going to last:

WASHINGTON — The U.S. economy grew at a 3.5 percent annual rate in the July-September quarter, the fastest pace in two years and more than the government had previously estimated. But the growth spurt isn’t expected to last.

The gain in the gross domestic product, the economy’s total output of goods and services, came from added strength in consumer spending, business investment and the government sector, the Commerce Department said Thursday. The government had previously estimated last quarter’s annual growth rate at 3.2 percent.

The economy’s acceleration last quarter marked a sharp pickup from the tepid annual growth of 0.8 percent in the first quarter and 1.4 percent in the second. Still, growth is expected to slow to a roughly 1.5 percent annual rate in the October-December quarter, reflecting in part less consumer spending and less business stockpiling.

Growth for the entire year, economists say, is likely to be around 1.5 percent. That would be down from 2.6 percent in 2015 and would be the weakest performance since the economy shrank 2.8 percent in 2009 at the depths of the worst economic downturn since the 1930s. The recovery began in mid-2009, but growth has averaged just over 2 percent, the weakest expansion in the post-World War II period.

President-elect Donald Trump had criticized the sluggish pace of growth during the campaign and said his economic policies would accelerate annual GDP growth to 4 percent or better. To do that, Trump said he would eliminate many government regulations, boost spending on the nation’s aging infrastructure and slash taxes.

Most economists don’t think 4 percent growth is realistic, given a chronic slowdown in worker productivity and a slower-growing U.S. workforce due in part to retiring baby boomers.

Most forecasters expect growth of around 2.5 percent next year, though they say those estimates could rise if Trump wins congressional support for much of his economic program. Stock markets have risen sharply since Trump’s election, partly a reflection of optimism that his proposals would boost growth and corporate profits.

Thursday’s report was the government’s third and final estimate of GDP growth for the July-September quarter. The upward revision mainly reflected stronger consumer spending, which grew at a 3 percent annual rate, more than the 2.8 percent pace that was estimated a month ago. Consumer spending is closely watched because it accounts for about 70 percent of economic activity.

The government also revised up its estimate for business investment: It showed an increase at a 1.4 percent annual rate, up from a much smaller 0.1 percent rate in the previous estimate.

Government spending was also revised up to show growth at a 0.8 percent annual rate, an increase that reflected a smaller drag from cutbacks at the state and local level.

This report, of course, comes just about a week after the Federal Reserve Board’s decision to raise interest rates for only the second time since the Great Recession ended in 2009, and the first time in a year. In part, I suppose, it explains the Board’s decision notwithstanding the fact that much of the economic news we’d seen in advance of the announcement didn’t really indicate that the economy was growing at a fast pace at all. At the same time, though 3.5% growth for a single quarter is hardly explosive and the fact that most analysts are projecting that growth for the entirety of 2016 is expected to only be somewhere in the range of 1.5 %, it doesn’t seem likely that this growth is going to carry over into the new year. Indeed, as we have seen in the past, it’s often the case that the first quarter of the year is a time when the economy can be especially vulnerable to outside pressures from things as hard to predict as the weather. If we have another particularly hard winter over the next two or three months, then we could end up with a start to the year where the economy grows at an even slower pace than what’s predicted for the coming year.

Of course, the economic outlook for the coming year will also be strongly impacted by the policies enacted by the incoming Administration and the Republican Congress, and it’s still unclear exactly what we’ll see there. Republicans on Capitol Hill, for example, are talking about tax reform, including reforms designed to encourage corporations to repatriate huge amounts of cash currently sitting in accounts abroad in order to take advantage of lower corporate tax rates in Europe and elsewhere. At least on paper, the United States has some of the highest corporate tax rates in the world and many economists on both sides of the aisle have said that this discourages corporate investment by multinational corporations in the United States, which has been one of the main factors holding back economic growth and increased employment. Cutting those tax rates could help spur economic growth at least in the short term and would also increase Federal tax revenues if it did in fact lead to the repatriation of corporate cash currently sitting in foreign accounts. The Trump Administration, on the other hand, could have other ideas, including an infrastructure plan even larger than the one passed as part of President Obama’s 2009 economic stimulus bill. That plan is likely to have more support among Democrats than Republicans, though, and could face an uncertain future in Congress unless lawmakers and find offsetting cuts to match spending increases. Between that uncertainty and other factors, it’s hard to say exactly where the economy is headed in the coming year.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. J-Dub says:

    President-elect Donald Trump had criticized the sluggish pace of growth during the campaign and said his economic policies would accelerate annual GDP growth to 4 percent or better. To do that, Trump said he would eliminate many government regulations, boost spending on the nation’s aging infrastructure and slash taxes.

    4% growth, but at what cost? Polluted air? Fracking-induced earthquakes and polluted aquifers? Massive deficits and debt?

    We are on a trajectory to lower dependence on fossil fuels and lead the world in clean energy technology. We’re about to go backward under Trump. I’ll take 2% growth over that.

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  2. Neil Hudelson says:

    If you’re going to report all the good things about America that are unlikely to last too much longer, you’re gonna be here a long time….

    Like or Dislike: Thumb up 0 Thumb down 0

  3. al-Alameda says:

    Obama ruined the economy:

    Unemployment down from 10% to below 5%, economic growth steady for over 6 consecutive years since the depths of recession, annual deficit as a percent of GDP at lowest levels in decades, inflation below 3%, equities markets at over twice the level of the 2008 crash, housing markets have rebounded to recover the $8 trillion lost in the crash.

    Economic historians are going to judge the Obama years very favorably, all complaints by Republicans notwithstanding.

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  4. James in Bremerton says:

    While it’s silly-season for predictions, why not another?

    April. That will be the month job growth falters, and economic growth begins to wander. The three rate increases planned by the Fed will turn into just one increase, as uncertainty grinds the stock market to a halt.

    People will oppose the GOP and Trump on general principles. Republicans want to dismantle every kind of protection, and everyone knows it. There is still latent shock today. That won’t last once Trump starts “decidering.” Anyone read the “first amendment defense act” Lee and Cruz are planning? Morning in America, c. 1850.

    Just look at the mess in NC, which is still under boycott.

    We’ll pine for the days of W’s failed wars and destruction of the U.S. economy before it’s over.

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  5. grumpy realist says:

    Did anyone see where Trump is toying with the idea of imposing a 5% tariff on all imports by Executive Order?

    What fun!

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  6. J-Dub says:

    @grumpy realist: The one good thing about him appointing all these billionaire corporate bosses to his cabinet is that they should know better and will hopefully tell him what a stupid move that would be.

    Like or Dislike: Thumb up 0 Thumb down 0

  7. C. Clavin says:

    Actually in order for Trump to make god on a bunch of his other claims, like job creation and deficits, the economy would have to grow at over 6%.

    Trump claims he can create enough jobs to overcome a projection that his plans would take federal debt to 105% percent of GDP. But non-partisan Cmte for a Responsible Federal Budget, which made the projection, says that to balance the budget under Trump’s plan, “growth would need to reach a sustained 6.1% annually — triple what most forecasters project”

    But as we have seen in recent days…what Trump said then has nothing to do with what he says now.
    The stupid phvck can’t even get anyone to perform at his inauguration…much less grow the economy.

    According to a report in The Wrap published earlier in December, Trump’s team offered bookers cash or diplomatic posts if they could secure high-wattage talent for his inauguration.

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  8. Franklin says:

    @J-Dub: I’ve yet to see any evidence that “economic growth” needs to be anything other than approximately the same value as the population growth (which in the United States is roughly 1% per year).

    Like or Dislike: Thumb up 0 Thumb down 0

  9. C. Clavin says:

    Economic growth is not going to matter because Trump is going to get us all killed.
    Dumb-Don, on Twitter today…

    “The United States must greatly strengthen and expand its nuclear capability until such time as the world comes to its senses regarding nukes,”

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  10. barbintheboonies says:

    @C. Clavin: They all know what happened to the Dixie Chicks, and want to keep their lively hood from being destroyed by angry Democrats. Now who are the bad guys. What a shame people are bullied over party lines.

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  11. michael reynolds says:

    @barbintheboonies:

    Sorry, but no one in the creative world wants the stink of Trumputin on them. Don’t elect a skunk and then complain no one wants to party with him.

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  12. Tyrell says:

    One problem is the “hidden” costs that are rising, but are under the surface and are not noticed, but it becomes “what happened to all our money?”, and the paycheck doesn’t cover what it used to. One example is certain foods. A bag of fiery chips costs the same, but the bag is smaller. Or air for tires used to be free. Now it is 50 cents, if you can get darn machine to work. Drink machines Cokes are now a dollar, used to be 50 cents. Property taxes increase yearly. If you buy an appliance now they throw in a “recycling” fee that goes with the old one. School lunches go up, the students get less “food” portions (not enough calories for hedgehog !). Cable: seems those weird “regulatory” fees go up every three months. More add on fees to fly: an extra fee to be able to sit beside a preferred person (husband, wife, parent, etc). You can probably tell about more.
    See Peter Booorckman and Rick Santelli, “Hidden inflation”, CNBC.

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  13. barbintheboonies says:

    @michael reynolds: Kanya West does not mind, and he is getting harassed. Entertainment is universal, and whatever party you belong to we have music and art that should be kept sacred. We do not want to be bullied into silence.

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  14. C. Clavin says:

    @barbintheboonies:

    want to keep their lively hood from being destroyed by angry Democrats.

    No…they don’t want to be associated with this colossal buffoon. He’s an embarrassment to this nation. No one wants that stench on them. He can’t get top people to serve in his administration him…and he can’t get top talent to perform at his inauguration. It’s got nothing at all to do with Democrats.

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  15. J-Dub says:

    @Tyrell:
    A bag of fiery chips costs the same, but the bag is smaller. The hidden cost of a population that survives on chips and soda is far greater than the size of the bag
    Or air for tires used to be free. Now it is 50 cents I wish it was 50 cents, $1 everywhere I live and you have to hustle to inflate four tires in the allotted time
    “If you buy an appliance now they throw in a “recycling” fee that goes with the old one And it needs it because it probably won’t last a year
    More add on fees to fly To offset the high fuel costs but never went down when those costs dropped. Money grab.
    The cost of keeping up with technology, i.e. cable tv/internet/mobile phones is expensive and debatable whether it has made life any better. A younger co-worker remarked yesterday about what kids did before video games. I told him we literally played in dirt. Probably happier too, and with more antibodies and resistance to allergens. Nobody I grew up with had any peanut allergies, or if they did they left the gene pool like they were supposed to.

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  16. Tyrell says:

    @J-Dub: Those are excellent points. When I was a kid the woods were our playground and kingdom. We would climb trees, find arrowheads, catch crawfish, and explore new paths. Back then parents did not have to supervise every move.

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  17. barbintheboonies says:

    All I am saying is just because people associate and perform for someone we dislike, they should not be harassed. It has nothing to do with them. They will get exposure to millions of people and benefit from it. Who are we to take that away from them. You can turn you backs on them if you wish, but I would just enjoy the entertainment for what it is. They may dislike him as much as you do. Or may in the future. I said the same thing when some woman would not bake a wedding cake for gays. Do you really want to lose business by refusing it.

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  18. barbintheboonies says:

    @J-Dub: Air cost me a $1.50 the other day

    Like or Dislike: Thumb up 0 Thumb down 0

  19. J-Dub says:

    @Franklin:Economic growth requires population growth to some degree unless you have greater than average productivity growth.

    Which begs the question, does Trump want greater productivity growth? That would most likely mean automating away many jobs. Or does he want greater population growth, which would mean a much higher level of immigration?

    Does he want high paying manufacturing jobs? That would require education and unionization, but like he says, he loves the uneducated and hates unions.

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  20. barbintheboonies says:

    @C. Clavin: I am sorry I should not have said angry Democrats since it happens on both sides of the fence.

    Like or Dislike: Thumb up 0 Thumb down 0

  21. C. Clavin says:

    @barbintheboonies:

    they should not be harassed.

    Who is being harrassed? These people are refusing to perform for him of their own accord. They don’t want the stench of this stupid phvcking buffoon on them. He is a crass, misogynistic racist clown. Really, who can blame them?

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  22. J-Dub says:

    @barbintheboonies: In their defense, if you really live in the boonies it costs much more to ship the air to your location. /s

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  23. gVOR08 says:

    @J-Dub:

    4% growth, but at what cost? Polluted air? Fracking-induced earthquakes and polluted aquifers? Massive deficits and debt?

    Don’t worry about Trump generating more pollution to grow GDP. There isn’t, really, a trade off between GDP growth and renewables. In fact, there’s a pretty good case that increased development and use of renewables would grow GDP.

    Trump’s not going to screw the environment to get GDP growth.He’s doing it to improve profits for people who lobby him. Tillerson is a big neon sign that they’re going to get everything they want.

    The 4% GDP thing was just Trump blowing. He hasn’t a clue how to get GDP growth. Congress is going to spend like a drunken sailor, and they’ll probably call it stimulus. But the funny thing is, it won’t work. It would have worked six or eight years ago, when the Fed would have liked to lower rates to stimulate activity, but couldn’t because rates were already zero, the famous Zero Lower Bound. That’s why deficit spending then wasn’t inflationary, and didn’t freeze out other borrowing. That was then, this is now. The Fed is already raising rates, and will really do so as the GOPs’ deficit spending proves inflationary.

    So, yes, Trump will be screwing the environment for his fossil fuel buddies, but they won’t be doing it to sacrifice the environment in favor of GDP growth. They’ll be doing it because they’re greed obsessed asshats that don’t know any better.

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  24. gVOR08 says:

    @J-Dub:

    In their defense, if you really live in the boonies it costs much more to ship the air to your location. /s

    Good one. And of course it has to be delivered air freight.
    But Barb should recognize she’s not buying air, she’s paying rent on the compressor.

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  25. barbintheboonies says:

    @J-Dub: Now that was really stupid. I stated a fact and you had to say something like that. I live in the boonies yes but commutable to a city. Grow up.

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  26. barbintheboonies says:

    @C. Clavin: I hope you are right, we`ll see. Someone will eventually play, I hope they will not get backlash for it.

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  27. Just 'nutha ig'rant cracker says:

    @J-Dub: Speaking as a peanut-allergy guy who didn’t leave the gene pool (AHEM……..), peanut allergies when I was young were fairly easy to cope with. The problem that I see as a former allergy patient (desensitization finally took hold when I was 55 or so) is that so many allergens are triggering anaphylactic shock with very low contact triggers. I’ve seen kids who broke out in rashes from handling in-shell peanuts and have heard from sources that I consider reliable stories of people becoming convulsive and shocky from merely smelling peanuts. I had what was considered a very strong peanut allergy–the swelling from the peanut reaction covered up the results from three other test scratches–and I didn’t have that much sensitivity.

    When I was a teenager, Epipens had just started being marketed–for people with bee sting venom allergies in case they got stung multiple times.

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  28. Just 'nutha ig'rant cracker says:

    @barbintheboonies: I go to Les Schwab and they fill my tire for free. Or to the dealer (but my car is still under warranty).

    Like or Dislike: Thumb up 0 Thumb down 0

  29. J-Dub says:

    @barbintheboonies:

    Grow up

    No thanks.

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  30. barbintheboonies says:
  31. michael reynolds says:

    @barbintheboonies:

    You know the name Leni Riefenstahl? She was a brilliant director who made brilliant propaganda films for Hitler.

    Artists are not servants. We create what we want to create, perform where and when we want to perform. And we are responsible for our choices. Leni Riefenstahl was a cautionary tale that has reverberated down through the ages. That’s why no one wants to be associated with the nasty pig you put in office.

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  32. Pch101 says:

    I can’t imagine that most major rock or pop musicians or even many of the country performers would want to celebrate Trump’s coronation.

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  33. michael reynolds says:

    @Pch101:
    There’s always Ted Nugent and maybe Gene Simmons. A pair of washed-up 80’s acts is about right. Or Putin could send him some ballet dancers. Trump could grab ’em by the pussy. He’d like that.

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  34. Pch101 says:

    @michael reynolds:

    KISS turned down the invite. I would expect Trump’s rock options to be limited, and for any A-listers to be limited to country.

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  35. michael reynolds says:

    @Pch101:

    Wow, even KISS won’t go? Simmons will do anything for money. I would be willing to give Green Day a pass if they’d perform American Idiot.

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  36. HarvardLaw92 says:

    @Pch101:

    Not even them. Apparently Garth Brooks said “No, thank you” as well.

    They do seem to have lined up some second place contestant on America’s Got Talent.

    Which is about as ironic as it gets …

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  37. Tyrell says:

    @HarvardLaw92: How about Willie Nelson ?

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  38. Pch101 says:

    A country act called Big & Rich will be appearing. (More irony.)

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  39. HarvardLaw92 says:

    @Pch101:

    Sounds like another B-list “who the hell is that?” act to me.

    Which is oddly appropriate. Trump couldn’t get headliners to play Atlantic City either :-)

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  40. HarvardLaw92 says:

    @Tyrell:

    ¯\_(ツ)_/¯

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  41. michael reynolds says:

    I hear Pussy Riot are available.

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  42. Pch101 says:

    I had never heard of them, but Big & Rich are on a major label and have been in the country album and singles Top 40 several times, so it’s fair to say that they are popular for the genre.

    (With few exceptions, artists that successful by country standards have pretty lackluster results in comparison to the major pop music acts, so it’s all relative.)

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  43. Guarneri says:

    @C. Clavin:

    Having a bad month and a half? Try this: hold your breath, stomp your feet, and call people poopies.

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  44. Guarneri says:

    I hear Pink Floyd announced their kiss and make up reunion gig for the inauguration.

    Careful with that ax, Eugene.

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  45. C. Clavin says:

    @Guarneri:
    WTF are you talking about? Do you even know? Or you just feel like letting your emotions take over?

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  46. C. Clavin says:

    @Guarneri:
    Hey douche-phvck…did you vote for Trump so that he could start an arms race? Or is that just a bonus. You moron.

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  47. al-Alameda says:

    I recommend “Men Without Jobs”

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  48. Just 'nutha ig'rant cracker says:

    @Pch101: IIRC, Big and Rich were one of the acts on some sort of a 5-pack country music “spectacular” at the Oregon State Fair last year.

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  49. barbintheboonies says:

    I just knew there would be artist bashing here, you cannot help yourself. Just being asked to play and you need to put them down. I know you guys are the intellects, and so much better than them. I thought people like you were supposed to be better than poo slingers.

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  50. al-Ameda says:

    @barbintheboonies:

    I just knew there would be artist bashing here, you cannot help yourself. Just being asked to play and you need to put them down. I know you guys are the intellects, and so much better than them. I thought people like you were supposed to be better than poo slingers.

    Barb, maybe you can help me out here?
    Why are conservatives now the single most victimized group of people in America today? It seems that conservatives are constantly victimized by liberal America, and so they’re always in a state of anger and resentment. Is it mainstream conservative media that causes/fuels the anger, agitation and frustration?

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  51. gVOR08 says:

    @barbintheboonies: Here’s the deal, Barb. You’re a conservative. Conservatives feel a need for absolute moral rules. Deficit spending is bad, irregardless of whether we’re in a boom or a recession. (I’m speaking of voters here, not Republican pols who have a completely different sense of morality.) Protest is always good or always bad. If you were for the Dixie Chicks, and against those who stunted their careers, then you must be for Bocelli performing at the Inauguration and against those who protested to him.

    “A foolish consistency is the hobgoblin of little minds.” Many of us are liberals, we’re OK with situational ethics. Protesting a stupid war is good, and should be encouraged, not punished. (A war everyone now realizes was stupid, hence Trump lying about opposing it.) Supporting the inauguration of an incompetent sociopath is a bad thing and should be discouraged.

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