The US economy looks to be back on track after the Commerce Department reported an annual growth rate of 2.1% for the three months to September — an increase that was stronger than previously anticipated.
The latest rise suggests the risk of recession has eased in the short term and that the Federal Reserve will not have to intervene to stimulate conditions after cutting interest rates for the third time in 2019 just last month.
Economic growth had been expected to grow at a pace of 1.9%, but the Commerce Department rolled back on that advance reading on Wednesday when it said GDP — a monetary measure of the market value of services and goods — is set to climb 2.1%.
The US has seen a record run of growth with GDP expanding by 2% in Q2 and 3.1% in Q1, but there have been fears that the robust uptick could taper off during the final months of the year due to the impact of the 18-month long US-China trade war and steeper tariffs.
Economic conditions during the latest quarter were helped by strong rates of consumer spending, which accounts for around 66% of all economic activity.
The spectre of the trade battle and other economic headwinds in H2 2019 have cast a shadow over the US economy, but households have kept their end of the bargain by fuelling growth.
Analysts believe the economy could have cooled more than expected if consumer spending had fallen, especially as business investment has slumped 2.7% in recent months.
“Slowing investment is mainly due to heightened uncertainty over the future direction of US trade policy, as well as slowing external demand amid a cooling of the global economy,” Economist Intelligence Unit global forecasting director, Agathe Demarais said.
She added: “Against this backdrop, consumer demand represents the only remaining engine of US growth.”
While the latest 2.1% uptick is healthy, the figure remains far short of the 3+% growth rate targeted by the White House as the Trump Administration looks to bolster conditions in the run-up to next year’s US presidential elections.
Annual GDP has failed to live up to the expectations set out by Donald Trump in his first term in office and a failure to drive higher rates of growth could prevent him from using the economy as a main talking point in 2020.
Trump’s desire to face off with China on trade is likely to be viewed as an error, as amongst other issues and challenges born from the tit-for-tat battle, business confidence has eroded.
A second report released in midweek showed the largest rise in orders for non-defence capital goods since the beginning of the year.
Core capital goods orders declined 0.5% in September but fervent demand for a range of electrical components and materials, including fabricated metals, made for a quick rebound.