Economic Growth Slowed To 2.1% 2nd Quarter vs Trump’s Promised 4,5,Even 6% GDP (#GotBitcoin?)
The U.S. economy slowed but still grew at a solid clip in the second quarter as strong consumer spending offset a drop in business investment, keeping the decade-long expansion on track amid trade tensions and cooling global activity. Economic Growth Slowed To 2.1% 2nd Quarter vs Trump’s Promised 4,5,Even 6% GDP (#GotBitcoin?)
Gross domestic product, a broad measure of goods and services produced across the economy, rose at a 2.1% annual rate in the second quarter, adjusted for seasonality and inflation, the Commerce Department said Friday.
That marked a pullback from a 3.1% pace in the first quarter, when growth was partly driven by a jump in inventories and exports and a fall in imports—factors that reversed in the April-June period.
President Trump said on Twitter Friday morning that the 2.1% figure was “not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck.” Mr. Trump has attacked the Fed for months and called for the central bank to cut interest rates to boost growth.
Businesses took a more cautious approach to spending in the second quarter, causing their investment to decline for the first time since early 2016, the report showed. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—fell at a 0.6% rate, compared with a 4.4% rise in the first quarter.
One factor that generated uncertainty for businesses in the second quarter was the international trade situation, as the U.S. increased levies on Chinese goods and threatened, but didn’t implement, tariffs on Mexican imports.
Joe Baiz, president of Phoenix-based plastic-injection-mold manufacturer 4front Manufacturing, said business “slowed a little bit in the second quarter” as worries over trade policy generated “a lot of fear of the unknown.”
For American multinationals, “the number one concern is around trade and tariffs and what’s going to happen there,” said Sanford Cockrell, a managing partner at Deloitte LLP. As chief financial officers begin setting budgets for the 2020 fiscal year, “it’s very difficult to budget in an environment where you really don’t know where you’re going to end up on tariffs,” he said.
Trade itself was a drag on growth, as exports fell at a 5.2% rate while imports rose slightly, expanding the deficit.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said, “The simple proposition is that the trade war made manufacturing weaker and the tax cut made consumer spending stronger.”
Shoppers picked up the slack in the second quarter. Consumer spending, which accounts for more than two-thirds of the economy, rose at an inflation-adjusted, annualized rate of 4.3% in the second quarter, up from its first-quarter pace of 1.1% and marking the strongest reading since late 2017.
Americans ramped up their spending on big-ticket items like cars as well as everyday goods like food and clothing.
Government expenditures also boosted growth, rising at a 5.0% annual rate in the second quarter, partly a rebound from the effects of the federal government shutdown that started in the fourth quarter and stretched into late January.
Friday’s report is one of the last major readings of the economy’s temperature Fed officials will see before their policy meeting July 30-31. They are prepared to cut their benchmark interest rate by a quarter percentage point from its current range between 2.25% and 2.5% and signal more reductions to come to bolster the U.S. economy at a time of cooling global momentum.
The divergent signals from strong consumer spending and weakening business investment leave a mixed picture. The economy remains supported by low unemployment and rising incomes, but slowing global growth and trade uncertainties are weighing on the outlook.
Growth readings can be volatile from quarter to quarter. Output rose 2.3% in the second quarter from a year earlier.
Signs of business caution appeared in many corners of the GDP report.
The rate of investment in business structures alone—such as factories and health care facilities—declined at a 10.6% pace in the second quarter while equipment spending advanced at a meager 0.7% rate.
Businesses drew down their stocks in the second quarter rather than built them up. Private, nonfarm inventory investment subtracted 0.85 percentage point from the quarter’s 2.1% GDP growth rate.
Housing was a headwind for growth for the sixth quarter in a row as residential investment fell at a 1.5% annual pace, despite falling mortgage rates in the April to June period.
Inflation firmed in the second quarter. The price index for personal-consumption expenditures increased at a 2.3% annual pace in the second quarter, a pickup from a 0.4% rate in the first quarter. Core prices—which exclude food and energy—rose at 1.8% rate. The Fed seeks to keep inflation at 2% because it sees that as consistent with a healthy economy.
Many economists expect growth this year of around the 2.3% averaged during the current expansion, which started in mid-2009 and this month became the longest on record. Fed officials’ median projection in June was for 2.1% growth from the fourth quarter of 2018 to the fourth quarter of 2019.
Many economists started 2019 expecting growth this year to slow from 2018’s 2.9% pace because of the waning effects of tax cuts and federal spending increases.
Earnings for the S&P 500 appear to have grown in the second quarter at their most anemic pace since mid-2016.
Earnings per share are expected to rise just 0.2% over second-quarter 2018, according to an estimate from financial-data firm Refinitiv, which combines analyst estimates with actual results from the 37% of companies that have already reported.
Many executives said the second quarter was slower than the same period in 2018, but business remains steady.
“Last year was stronger but it’s still OK,” said Keith Baldwin, president of Spike’s Trophies Ltd., a , Philadelphia-based manufacturer of awards and recognition products. “There’s a little bit of caution but it’s still OK.”
Higher consumer spending offset a decline in business investment.
Meanwhile: December 7, 2017
Trump Thinks The U.S. Could See 6% Economic Growth. The Data Says Otherwise.
President Donald Trump is feeling pretty good about the United States’ economic prospects.
On Wednesday, Trump told reporters that he expects to see a 6% annual growth rate. That might not sound like a wild number, until you consider that 6% more than doubles the 30-year average rate of 2.5%. Six percent is also more than triple what the Congressional Budget Office forecasts for the next ten years.
According to Bloomberg, Trump claimed that the combination of high consumer confidence, job creation, and tax cuts would create this considerable growth. Trump claimed that he sees “no reason why we don’t go to 4, 5, even 6%.”
Unfortunately, Trump didn’t explain exactly how this jump would happen, and few economists support his claim. In a Bloomberg survey of 80 economists, only one forecast showed a growth above 4%. The median was 2.5%—which has long been the average. What’s more, the Joint Committee on Taxation found that the potential growth from the GOP tax plan would only add 0.8% to the current forecast over the next decade.
While Trump’s ambition does not appear to be rooted in sound economic analysis, it is not the first time he has painted an overly rosy outlook for the U.S. economy. In August, Trump compared the U.S.’s 2% annual growth over the last decade with other countries that are “unhappy when it’s 7, 8, 9%.” With these other economies as a model, Trump claimed at the time that he thinks “we can go much higher than 3%. There’s no reason why we shouldn’t.” What he failed to mention is that only seven of the close to 200 countries tracked by the IMF have seen more than 7% growth over the last year. Economic Growth Slowed To,Economic Growth Slowed To,Economic Growth Slowed To,Economic Growth Slowed To
One Of Trump’s Biggest And Best Campaign Promises Has Been Exposed As A Worthless Sham
Bad news about infrastructure is as ubiquitous as potholes. Failures in a 108-year-old railroad bridge and tunnel cost New York commuters thousands of hours in delays. Illinois doesn’t regularly inspect, let alone fix, decaying bridges. Flooding in Nebraska caused nearly half a billion dollars in road and bridge damage—just this year.
No problem, though. President Donald Trump promised to fix all this. The great dealmaker, the builder of eponymous buildings, the star of “The Apprentice,” Donald Trump, during his campaign, urged Americans to bet on him because he’d double what his opponent would spend on infrastructure. Double, he pledged!
So far, that wager has netted Americans nothing. No money. No deal. No bridges, roads or leadless water pipes. And there’s nothing on the horizon since Trump stormed out of the most recent meeting. That was a three-minute session in May with Democratic leaders at which Trump was supposed to discuss the $2 trillion he had proposed earlier to spend on infrastructure. In a press conference immediately afterward, Trump said if the Democrats continued to investigate him, he would refuse to keep his promises to the American people to repair the nation’s infrastructure.
The comedian Stephen Colbert described the situation best, saying Trump told the Democrats: “It’s my way or no highways.”
The situation, however, is no joke. Just ask the New York rail commuters held up for more than 2,000 hours over the past four years by bridge and tunnel breakdowns. Just ask the American Society of Civil Engineers, which gave the nation a D+ grade for infrastructure and estimated that if more than $1 trillion is not added to currently anticipated spending on infrastructure, “the economy is expected to lose almost $4 trillion in GDP, resulting in a loss of 2.5 million jobs in 2025.”
Candidate Donald Trump knew it was no joke. On the campaign trail, he said U.S. infrastructure was “a mess” and no better than that of a “third-world country.” When an Amtrak train derailed in Philadelphia in 2015, killing eight and injuring about 200, he tweeted, “Our roads, airports, tunnels, bridges, electric grid—all falling apart.” Later, he tweeted, “The only one to fix the infrastructure of our country is me.”
Donald Trump promised to make America great again. And that wouldn’t be possible if America’s rail system, locks, dams and pipelines—that is, its vital organs—were “a mess.” Trump signed what he described as a contract with American voters to deliver an infrastructure plan within the first 100 days of his administration.
He mocked his Democratic opponent Hillary Clinton’s proposal to spend $275 billion. “Her number is a fraction of what we’re talking about. We need much more money to rebuild our infrastructure,” he told Fox News in 2016. “I would say at least double her numbers, and you’re going to really need a lot more than that.”
In August of 2016, he promised, “We will build the next generation of roads, bridges, railways, tunnels, seaports and airports that our country deserves. American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas. American steel will send new skyscrapers soaring. We will put new American metal into the spine of this nation.”
In his victory speech and both of his State of the Union addresses, he pledged again to be the master of infrastructure. “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, school, hospitals. … And we will put millions of our people to work,” he said the night he won.
That sounds excellent. That’s exactly what 75 percent of respondents to a Gallup poll said they wanted. That would create millions of family-supporting jobs making the steel, aluminum, concrete, pipes and construction vehicles necessary to accomplish infrastructure repair. That would stimulate the economy in ways that benefit the middle class and those who are struggling.
That contract Trump signed with American voters to produce an infrastructure plan in the first 100 days: worthless. It never happened. He gave Americans an Infrastructure Week in June of 2017, though, and at just about the 100-day mark, predicted infrastructure spending would “take off like a rocket ship.” Two more Infrastructure Weeks followed in the next two years, but no money.
Trump finally announced a plan in February of 2018, at a little over the 365-day mark, to spend $1.5 trillion on infrastructure. It went nowhere because it managed to annoy both Democrats and Republicans.
It was to be funded by only $200 billion in federal dollars—less than what Hillary Clinton proposed. The rest was to come from state and local governments and from foreign money interests and the private sector. Basically, the idea was to hand over to hedge fund managers the roads and bridges and pipelines originally built, owned and maintained by Americans. The fat cats at the hedge funds would pay for repairs but then toll the assets in perpetuity. Nobody liked it.
That was last year. This year, by which time the words Infrastructure Week had become a synonym for promises not kept, Trump met on April 30 with top Democratic leadersand recommended a $2 trillion infrastructure investment. Democrats praised Trump afterward for taking the challenge seriously and for agreeing to find the money.
“It couldn’t have gone any better,” Ways and Means Committee Chairman Richard E. Neal, D-Mass., told the Washington Post, even though Neal was investigating Trump for possible tax fraud.
Almost immediately, Trump began complaining that Democrats were trying to hoodwink him into raising taxes to pay for the $2 trillion he had offered to spend.
Trump and the Republicans relinquished one way to pay for infrastructure when they passed a tax cut for the rich and corporations in December of 2017. As a result, the rich and corporations pocketed hundreds of billions—$1 trillion over 10 years—and Trump doesn’t have that money to invest in infrastructure. Corporations spent their tax break money on stock buybacks, further enriching the already rich. They didn’t invest in American manufacturing or worker training or wage increases.
Three weeks after the April 30 meeting, Trump snubbed Democrats who returned to the White House hoping the president had found a way to keep his promise to raise $2 trillion for infrastructure. Trump dismissed them like naughty schoolchildren. He told them he wouldn’t countenance Democrats simultaneously investigating him and bargaining with him—even though Democrats were investigating him at the time of the April meeting and one of the investigators—Neal—had attended.
Promise Not Kept Again
Trump’s reelection motto, Keep America Great, doesn’t work for infrastructure. It’s still a mess. It’s the third year of his presidency, and he has done nothing about it. Apparently, he’s saving this pledge for his next term.
In May, he promised Louisianans a new bridge over Interstate 10—only if he is reelected. He said the administration would have it ready to go on “day one, right after the election.” Just like he said he’d produce an infrastructure plan within the first 100 days of his first term.
He’s doubling down on the infrastructure promises. His win would mean Americans get nothing again.
Economic Growth Slows As Business Investment Falls
Consumer spending growth offsets business investment decline in 1.9% GDP increase.
U.S. economic growth settled in at a lower gear in the third quarter, with consumer spending and housing investment increases offsetting a business investment drop.
Gross domestic product—the value of all goods and services produced in the U.S.—rose at an annual rate of 1.9% from July through September—adjusted for inflation and seasonality, the Commerce Department said Wednesday, compared with 2.0% in the second quarter.
“I think it’s consistent with an economy that’s just moving back towards trend,” Michael Feroli, an economist at JPMorgan Chase & Co., said of the growth reading.
The stronger-than-expected growth rate was boosted by government and consumer spending, residential investment and exports. Still, business spending declined for the second quarter in a row. Investment in structures dropped sharply, particularly those related to the petroleum and natural gas industries.
The Commerce Department report showed the divergence between relatively solid consumer spending and falling business investment continued from the second quarter into the third, as the long-simmering trade war with China escalated. The report came hours ahead of a scheduled rate announcement from policy makers at the Federal Reserve, who conclude a two-day policy meeting later Wednesday.
The central bank cut interest rates twice in the third quarter. Officials are expected to again cut the benchmark federal-funds rate by a quarter percentage point, to a range between 1.50% and 1.75%, aiming to shield the economy against growing risks of a sharper economic slowdown.
Compared with the third quarter a year ago, output grew 2.0%—the weakest quarterly year-over-year rate since the final quarter of 2016.
Consumer spending moderated to a 2.9% annual rate in the third quarter, from a 4.6% rate in the second. From a year earlier, consumer spending increased 2.5% in the third quarter, roughly consistent with the pace over the past year.
Consumers are the lifeblood of the U.S. economy, as their spending accounts for nearly 70% of output. The report showed their spending on big-ticket items such as cars and appliances slowed but remained strong, while spending on services slowed.
The slower pace of consumer spending in the third quarter came despite a solid financial foundation for many U.S. households. The unemployment rate was at half-century lows from July to September, and wages and incomes rose. Consumer sentiment has remained strong in recent months and rose slightly in October, according to the University of Michigan’s Surveys of Consumers.
The housing sector was a tailwind for growth as residential investment rose at a 5.1% annual pace. The boost, which followed six straight quarters of declines, likely reflected lower short-term interest rates propelling construction and improvements.
The Commerce Department data also offered evidence of slowing corporate demand. Nonresidential fixed investment—which reflects business spending on software, research and development, equipment and structures—fell at a 3.0% rate.
Equipment spending on aircraft also decreased amid the continuing grounding of Boeing Co.’s 737 MAX jetliner and probes into the causes of two deadly plane crashes involving the Boeing plane, a Lion Air jet in October 2018 and an Ethiopian Airlines MAX in March
Private investment in aircraft equipment was $22.5 billion annualized and adjusted for inflation in the third quarter, less than half the $48.1 billion rate in the final quarter of 2018.
Business-investment data can be volatile from one quarter to another, but the weak number in the latest report suggests factors including political uncertainty and the outlook for trade tariffs are weighing on business decisions to spend on new equipment and plants.
D’Anne McCumber, general manager at equipment maker Oilfield Improvements, Inc. in Broken Arrow, Okla., said “things have slowed down just a little bit, but not severely,” compared with the first and second quarters of this year.
“Right now people are in a bit of a holding pattern, it happens in the oil and gas industry at the beginning of a campaign year,” she said.
Low energy prices have “definitely restricted activity and investment in the oil and gas space,” said Aron Deen, director of marketing and business development at Fort Worth, Texas-based oil-drilling equipment maker Ulterra Drilling Technologies.
“The market buzz in oil and gas has been basically trying to restrict spending to cash flow,” he said.
The decline in business investment is a sign that the 2017 tax law isn’t having the effects its authors predicted and desired. The law cut corporate tax rates and allowed immediate deductions for capital investment, and raising the after-tax rate of return was supposed to encourage companies to spend on factories and equipment.
After an early jump in 2018, investment has slumped. It has been dragged down by uncertainty over the trade war and global economy. In addition, companies may not see the current corporate tax rules as stable over the longer term because Democrats are proposing to raise the corporate tax rate.
Trade was broadly neutral in the third quarter, as net exports subtracted a mild 0.08 percentage point from the quarter’s 1.9% GDP growth rate.
The pace of exports picked up to a 0.7% annual rate after a decline in the second quarter, while the rate of imports rose by a greater amount, a 1.2% rate, as Americans stepped up purchases of foreign goods.
After stripping out the volatile categories of trade, inventories and government spending, sales to private domestic purchasers rose at an annual rate of 2.0%, down from 3.3% in the second quarter.
Total government expenditures were up at a 2.0% annual rate in the third quarter.
A measure of overall inflation suggested underlying inflation pressures remained relatively subdued by historical standards. The price index for personal-consumption expenditures increased at a 1.5% pace in the third quarter. Core prices—which exclude food and energy—rose at a 2.2% rate.
U.S. Firms Pull Back on Investment
Capital spending by S&P 500 companies grew less than 1% in the third quarter, and would have fallen without Apple and Amazon.
Many of the biggest U.S. companies are moderating their spending on equipment and other capital investment, as an uncertain business environment prompts some to postpone or shelve otherwise promising projects. That could pose a continuing drag on economic growth.
The pullback began as trade tensions escalated last fall, leaving companies unsure about their supply chains, pricing and profits. It has continued amid signs of slowing global growth and increasing consumer concerns about the future. Household names like Harley-Davidson Inc., AT&T Inc. and Target Corp. are joining small businesses in putting the brakes on investment.
Some companies have warned it could continue into next year, when the presidential and congressional election is expected to add even more uncertainty to business decision-making.
Companies slow capital investment for a variety of reasons, and few have explicitly tied their cutbacks to trade, typically citing slowing demand or project delays instead. Still, economists and analysts point to timing: The pullback began in third-quarter 2018, just as the U.S. and China began threatening and then imposing significant tariffs on one another’s goods.
Moreover, surveys of business sentiment show that trade tension has weighed on spending plans; earlier this month, the Atlanta Federal Reserve found that 12% of surveyed businesses—including one in five manufacturers —cut or delayed capital spending in the first half of 2019 because of trade tension and tariff worries, double the rate in the first half of 2018.
“The trade uncertainty has been a major drag on U.S. investment,” Stanford University economist Nicholas Bloom said. Mr. Bloom partners with Steven Davis of the University of Chicago and the Atlanta Fed on a monthly survey of business uncertainty.
They estimated that $40 billion in investment was lost in the first half of 2019 from trade issues, amounting to a reduction of about 3% based on $1.4 trillion in estimated nonresidential fixed investment, or capital spending on equipment, buildings, vehicles, computers and the like. Since 2000, such investment has grown at 4% a year.
“Some of this will come back—projects delayed—but some of this will be permanently lost,” Mr. Bloom said. “Factories that never open, IT projects that get shelved or R&D projects that are passed over. So I think there is a real long-run cost to U.S. growth.”
Trump administration officials have said trade barriers are meant in part to block imports and help revive U.S. manufacturing, while the new but unratified North American trade pact is also intended to encourage manufacturing investment in the U.S. President Trump has said higher tariffs were needed to get China to curtail trade practices that penalize U.S. businesses.
Capital spending by S&P 500 companies rose in the third quarter by just 0.8%, or a combined $1.38 billion, from the second quarter, according to data from S&P Dow Jones Indices covering companies reporting through the middle of the month.
But even that modest increase can be chalked up to a few big spenders: Amazon.com Inc. and Apple Inc. alone raised capital spending by $1.9 billion during the quarter. Without them, total spending by the 438 other companies that have reported so far would have shrunk slightly.
And overall spending would have shrunk by 2.2% absent increases from three others: Intel Corp. , Berkshire Hathaway Inc. and NextEra Energy Inc. Together, the five companies increased their capital budgets by $4.7 billion, or 30%, from the second quarter to third, the SPDJI data show.
Capital spending for 2019 by Harley-Davidson will fall about 8% from earlier projections, to between $205 million and $225 million, it said in late October. The motorcycle maker is completing planned projects efficiently, resulting in lower spending, a spokesperson said.
Glassmaker Corning Inc. cited weak demand for cutting production capacity in its fiber optics division. “I think given the environment we’re in today, capital spending probably isn’t going to be as high in 2020,” Chief Financial Officer Tony Tripeny said on an Oct. 29 conference call.
AT&T also said it expects to spend less on capital investment in 2020, due to cost-saving measures that are letting it invest in 5G wireless networks without increasing spending, company executives said on its Nov. 13 earnings call.
Target said annual capital spending is likely to come in at $3.1 billion, about 11% below earlier expectations, due to cost efficiencies and pushing some spending into next year. Executives said they expected $3.5 billion in spending next year as the company finishes remodeling 300 stores, and then a drop to as low as $2.5 billion a year after that.
The biggest pullback among S&P 500 companies came in the industrial sector, where total spending fell $1.8 billion, or 10%; and in financials, where spending fell $951 million, or almost 8%. Spending rose by 4.5%, or $1.2 billion, among communications-services companies.
Nonresidential fixed investment, a widely watched measure of U.S. business investment, fell by 3% in the third quarter and 1% in the second—the first consecutive quarterly decline since 2009, data from the Commerce Department’s Bureau of Economic Analysis show.
The percentage of small businesses planning to increase investment in the next 12 months rose slightly to 39% in November, from 35% the prior month but remains well below 45% a year ago, according to a monthly survey of almost 800 small firms for The Wall Street Journal by business-advisory firm Vistage Worldwide Inc. Half the companies said they expect no change to investment.
The investment plans are “consistent with a slower overall pace of economic growth as well as continued modest gains in employment during the year ahead,” Vistage said.
Dave Wilcox, CEO of Gold Systems Inc. in Salt Lake City, is pulling back on investment because of political uncertainty and the resulting slowness he expects in 2020. The company has about 30 employees and develops environmental software in the public sector.
“We are always conservative heading into an election year given the slowdown that often comes with it,” he said. With half of his business coming from the federal government, he is also worried that another government shutdown will cripple his business. Mr. Trump last week signed a spending bill that keeps the government funded through Dec. 20.
Glier’s Meats Inc., located just outside Cincinnati in Covington, Ky., recently completed multiyear equipment upgrades and replacements, but is now halting all unnecessary spending to preserve cash, also citing the looming political uncertainty and the risk of higher taxes. The company makes goetta, a regional sausage product similar to scrapple, and has fewer than 30 workers.
“We are in wait-and-see mode for at least another year,” said Dan Glier, whose father started the company shortly after he returned from World War II.
U.S. GDP Growth Revised Up in Third Quarter
New estimate of 2.1% growth rate due mainly to upward revisions to inventory and business investment.
The U.S. economic expansion remained broadly on track as it entered the fourth quarter.
Economic growth was slightly better than initially estimated during the third quarter, and early data from the fourth quarter suggested it started on a relatively steady footing.
Gross domestic product—the value of all goods and services produced across the economy—rose at a 2.1% annual rate in the third quarter, adjusted for seasonality and inflation, the Commerce Department said Wednesday.
The latest reading “indicates the economy is not about to fall off a cliff,” Oxford Economics said in a note to clients. “However, the lingering global industrial slump, persistent trade policy uncertainty and cooling income growth all point to weaker activity in the coming months,” economists Gregory Daco and Lydia Boussour said.
The 2.1% reading exceeded economists’ expectations and was a slight upgrade from the agency’s earlier estimate of third-quarter growth at a 1.9% annual rate, mainly due to an upward revision to inventory investment. Consumer spending drove economic momentum in the third quarter, as businesses struggled.
Separately, the Commerce Department said Wednesday that orders for long-lasting factory goods picked up in October, rising 0.6% from the prior month, a positive sign for fourth-quarter growth. The number of Americans applying for first-time unemployment benefits fell last week, the Labor Department said.
Growth in the fourth quarter, now in its ninth week, is shaping up to be a bit below the pace seen in the prior two quarters. Forecasting firm Macroeconomic Advisers on Wednesday projected GDP would expand at a 1.8% pace in the fourth quarter. Oxford Economics expects a 1.6% pace.
Corporate profits fell despite steady economic growth in the third quarter, according to the government’s first broad estimate of profits at U.S. companies in the quarter. The Commerce Department said legal settlements with Facebook Inc. and Google parent Alphabet Inc. reduced overall corporate profits.
A key measure of business earnings—profit after tax without inventory valuation and capital consumption adjustments—fell 0.6% from the prior quarter after rising 3.3% in the second quarter. Compared with the third quarter a year earlier, after-tax profits were down 0.4% on the year.
The latest reading of third-quarter growth broadly affirmed the agency’s earlier estimate that consumer spending and housing investment helped offset a drop in business investment in the July-through-September period. Third-quarter economic growth picked up slightly from a 2.0% pace in the second quarter.
Business investment, though, remains a weak spot for the economy. Nonresidential fixed investment—which reflects business spending on software, research and development, equipment and structures—fell at a 2.7% rate, a lesser drop than the initially estimated 3.0% decline. That was largely due to revised spending on commercial and health-care structures, the agency said.
The third-quarter drop in corporate profits and in business investment is the latest sign that uncertainty over the trade war, rising labor costs, weak energy prices and a struggling global economy are a drag on U.S. companies.
Third-quarter profits per share for S&P 500 companies are expected to fall 0.4% from a year earlier, the first year-over-year decline since early 2016, according to data from Refinitiv, which combined actual results from 95% of the companies in the S&P 500 index and analyst estimates for the rest.
Corporate revenue grew tepidly, rising 3.8% over the third quarter of 2018, the slowest rate in three years, Refinitiv data suggest. Net income—which doesn’t benefit from the share buybacks that lift per-share earnings—is poised to fall 2.5% for the index.
Data for the fourth quarter so far has shown employers are still hiring and consumers are spending, despite declining industrial production. Consumer sentiment remained at relatively high levels in November.
Consumer spending accounts for more than two-thirds of total economic output, and Wednesday’s report showed Americans’ outlays grew at a solid, though slower, pace in the July-to-September period compared with April to June. Personal-consumption expenditures rose at an unrevised 2.9% annual rate in the third quarter, compared with 4.6% in the second quarter.
Private, nonfarm inventory investment added 0.15 percentage point to the quarter’s 2.1% GDP growth rate, an upward revision from a previous estimate of a 0.07 percentage-point drag. That reflected higher investment in the nondurable goods manufacturing industries, the Commerce Department said. Net exports, a measure of trade, subtracted 0.11 percentage point from growth.
Wednesday’s report is unlikely to sway U.S. central-bank officials from their current wait-and-see stance on monetary policy.
The Federal Reserve has cut interest rates three times this year, most recently in October, on worries that weakness in manufacturing, trade and business investment could threaten the economic expansion by triggering cutbacks in hiring and consumer spending.
Officials meet in Washington in two weeks’ time for the last scheduled policy gathering of 2019.
Speaking in Providence, R.I., on Monday, Fed Chairman Jerome Powell said that “as this expansion continues into its 11th year—the longest in U.S. history—economic conditions are generally good.”
“If the outlook changes materially, policy will change as well,” he said.
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