The US economy slowed slightly more than previously estimated in the third quarter and momentum appears to have moderated further in the fourth quarter, with new orders and shipments of manufactured capital goods falling in November.
Growth in the October-December quarter could still be strong and keep the economy on track to achieve the Trump administration’s 3% target this year.
Consumer spending, which accounts for more than two-thirds of the US economy increased solidly in November, other data showed yesterday.
“Business spending looks to be losing momentum, placing the onus on households to keep the economic expansion going at a decent rate,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
Gross domestic product increased at a 3.4% annualised rate, the Commerce Department said in its third reading of third-quarter GDP growth.
That was slightly down from the 3.5% pace estimated last month and above the economy’s growth potential, which economists estimate to be about 2%. The revisions to the third-quarter GDP reading reflected markdowns to consumer spending and exports.
There were downward revisions to business spending on equipment and nonresidential structures, as well as residential investment.
Those downward revisions were partially offset by a larger accumulation of inventory than previously estimated.
The economy grew at a 4.2% pace in the April-June quarter.
The Federal Reserve raised interest rates on Wednesday for the fourth time this year, but forecast fewer rate hikes next year and signalled its tightening cycle is nearing an end in the face of financial market volatility and slowing global growth. The US central bank slightly lowered its growth projections for 2019.
US financial markets were little moved by the data as investors monitored political developments in Washington, where President Donald Trump threatened a “very long” government shutdown just hours ahead of a midnight deadline.
Growth is being driven by the government’s $1.5tn tax cut package, which has given consumer spending a jolt. The fiscal stimulus is part of measures adopted by the White House to boost annual growth to 3% on a sustainable basis.
But the economy appears to be slowing in the fourth quarter.
In a second report yesterday, the Commerce Department said orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.6% last month after an upwardly revised 0.5% increase in October.
Economists polled by Reuters had forecast these so-called core capital goods orders rising 0.2% last month after a previously reported unchanged reading in October. Core capital goods orders increased 6.5% on a year-on-year basis.
Last month’s drop in core capital goods orders added to data on the housing market and trade that have flagged a slowdown in economic growth in the October-December quarter.
There were decreases in orders for machinery and for electrical equipment, appliances and components. Orders for computers and electronic products were unchanged in November.
Shipments of core capital goods slipped 0.1% in November after an upwardly revised 0.8% increase in the prior month. Core capital goods shipments are used to calculate equipment spending in the GDP measurement.
They were previously reported to have increased 0.3% in October. Business spending on equipment grew at its slowest pace in nearly two years in the third quarter. It has been slowing despite a lower tax bill for corporations. Some companies including Apple used their tax windfall to buy back shares on a massive scale.
Spending on equipment could remain sluggish as sinking crude prices reduce demand for oil well drilling equipment.
Brent crude fell to a more than one-year low of $54.64 per barrel on Thursday amid worries of oversupply.
Industry data last week showed domestic energy firms cut oil rigs for a second week. Economic growth estimates for the fourth quarter are around a 2.9% rate. The slowdown in growth is expected to spill over into 2019 as the fiscal stimulus fades and a bitter trade war with China and strong dollar undercut manufacturing.
“We expect momentum to continue to fade as tailwinds from fiscal stimulus dissipate and rising headwinds from tighter financial conditions, slower global growth, reduced energy investment and heightened trade tensions start weigh on capex plans,” said Lydia Boussour, a US economist at Oxford Economics in New York.
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