Economic Growth Indicators for Third Quarter 2019 and Beyond

Economic Growth Indicators – 3rd Quarter 2019

Real Gross Domestic Product (GDP) increased at annual rate of 1.9 percent in the third quarter of 2019.  This is down from the 2% annual rate in the second quarter of 2019.   The third quarter figure was above the consensus forecasted figure of 1.6% and above the GDPNow for third-quarter forecast of 1.6%.  The New York Fed Staff Nowcast forecast was the most accurate prediction 1.9% for 2019 Q3.  

The Nowcasting Report indicates that in the fourth quarter of 2019, real GDP will grow at 0.8 percent. 

GDP Growth Rate in the United States averaged 3.21 percent from 1947 until 2019.

Household consumption, government spending and exports were the main drivers of growth while business investment fell and imports made a negative contribution to GDP.  

According to Dean Baker of the Center for Economic and Policy Research, “the economy seems positioned to continue to grow, albeit at a very modest pace. The tax cut provided a temporary boost to growth last year, but its impact has now essentially dwindled to nothing. Furthermore, the growth was overwhelmingly driven by consumption, not investment, as investment growth was modest even in the quarters immediately following the tax cut.”

Some analyst predict that the GM strike should weigh on motor vehicle inventories in Q4 and the dichotomy between consumers and businesses is likely to continue.  Thus, GDP growth prospects should remain contained at around a 2% pace, on average, over the next few quarters.

The Survey of Professional Forecasters concur, stating that the real GDP will grow by 2.0 percent in the fourth quarter of 2019, and 1.9 percent in the first quarter of 2020. On an annual-average over annual-average basis, the forecasters expect real GDP to grow 2.3 percent in 2019 and 1.9 percent in 2020.

Overall, forecasters predict U.S. real GDP growth over the next year to remain largely unchanged.  Real GDP is forecasted to average 2% growth over the course of 2020.  The forecasters also predict improvement in business fixed investment and residential investment growth.

Consumer Expenditures

Overall GDP growth in the third quarter was largely driven by real personal consumption expenditures, which increased at a 2.9% annualized rate, down from 4.6% in the second of 2019. Specifically, real personal consumption expenditures on durable goods increased by only 7.6 percent in the third quarter of 2019, down from 13% in 2nd Quarter of 13%. Non-durable goods rose 4.4%. Real consumer spending on services rose to 1.7%.   

Forecasted personal consumption for fourth quarter 2019 dropped to 1.9 percent but increased by one percentage point to 2.0 percent in the first and second quarters of 2019.  By fourth quarter of 2021 personal consumption is forecasted to be at 2.2 percent which is 0.9 percentage points below the current personal consumption rate.


Business Investment

Business investment shrank by -3.0 percent.  “This is not only the worst performance since late 2015, but it is also the first back-to-back contraction of more than 1% in business investment since 2009, reflecting the drags from weak global growth, rising trade protectionism, elevated policy uncertainty, a strong dollar, and depressed energy activity,” says Gregory Daco, chief U.S. economist at Oxford Economics.

Business Investment is expected to rebound to 3.4 percent by fourth quarter 2019.  On average, business investment growth is expected to be 3.4 percent per quarter in 2020 and 2021, respectively, with the lowest at 1.8 percent in 2Q in 2020 and 4.0 percent in 1Q 2021.

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