Waning international appetite for American-made goods held back the nation’s economic growth during the third quarter, government data released Thursday morning show, a side effect of broader weakness in the global recovery.
The Commerce Department reported that the U.S. economy expanded at a lackluster annual rate of 1.5 percent between July and September, less than half the pace of the previous quarter. The poor performance of exports throughout the year has forced businesses to slash their inventories. Though the numbers were in line with expectations, Wall Street opened in the red on the news.
"Manufacturers continued to anticipate modest growth moving forward, but their outlook remains guarded, particularly in light of current headwinds," said Chad Moutray, chief economist at the National Association of Manufacturers.
American households, however, have remained resilient in the face of those global headwinds. Consumer spending rose by a solid 3.2 percent during the third quarter, the data show. Business investment in equipment was also strong, though early indications for the fourth quarter suggest orders for durable goods are still weak.
Since the 2008 financial crisis, the global economy has been driven by blockbuster growth in China and the emerging markets that have fueled its once-insatiable demand for raw materials. But now the country that has served as the world’s assembly line is trying to shift to the slower and more stable pace of a consumer-focused economy — a change that is rippling across world markets. Resource-rich countries such as Brazil have fallen into recession as the price of commodities such as steel have plummeted.
The challenges confronting foreign economies translates into weaker currencies. The U.S. dollar, in turn, has risen roughly 20 percent over the past year, making American exports more expensive in the global marketplace. According to Goldman Sachs, the impact will hit hardest in the final months of the year through early 2016, then gradually diminish over the next two years.
A growing number of economists say the odds of another global recession are rising, one that could reverse the progress of America’s fragile recovery. But even if another downturn does hit, it is likely to be short and relatively shallow. The Federal Reserve on Wednesday downgraded its warnings about the global economy and signaled that it could start unwinding its massive safety net of stimulus later this year.
The nation’s central bank has been debating when to start raising interest rates, which have been at zero since the darkest days of the 2008 financial crisis. The move would be a signal that the Fed believes the recovery is ready to stand on its own, but the gloomier global outlook has stayed its hand so far this fall. However, in a statement released after its meeting on Wednesday, the Fed suggested that a rate hike at its next meeting in December remains on the table.
But Alan MacEachin, corporate economist at Navy Federal Credit Union, said that the numbers released Thursday do not help clarify the central bank's decision. Inflation remains well below the Fed's target of 2 percent, and the economy has yet to break out of its slow-and-steady slog.
“It’s not a convincing number for a hike, that’s for sure,” MacEachin said. “We need to see some acceleration from here.”
Though the international outlook remains cloudy, the forecast in Washington seems to be clearing up as several political battles that threatened to wreak havoc on the economy head toward resolution.
Republicans elected Rep. Paul D. Ryan (R-Wis.) on Thursday as the next speaker of the House, putting to rest a contentious leadership battle that left a vacuum of power as lawmakers faced deadlines for raising the nation’s debt ceiling and funding the federal government. The House on Wednesday passed a compromise bill that raises government spending by $80 billion and shelves further battles over the budget and the debt limit until 2017.
"Just the risk of those can be harmful for the economy," MacEachin said. "Removing those risks — or at least minimizing those risks — is a positive. It clears the picture up going forward."
Between 2011 and 2013, the drop in government spending shaved half a percentage point from economic growth. The so-called fiscal drag has since faded, however, and the Obama administration said Thursday that the new budget deal would add 340,000 jobs next year.
You might also like: