Gross domestic product (GDP) growth slowed for a third quarter, but the U.S. economy is still chugging along at an average pace.
GDP grew 1.9% in the third quarter, its slowest pace of growth since the fourth quarter of 2018, as shown in the LPL Chart of the Day. Still, GDP increased 2% year over year last quarter, slightly below 2.1% year-over-year average growth since the cycle started in July 2009.
The composition of growth last quarter showed U.S. consumers pulled the economy along once again. Consumer spending contributed 1.9 percentage points to the GDP increase during the quarter, while government spending added 0.4 percentage points. Housing contributed 0.2 percentage points, a nice surprise after residential investment dragged on growth for six straight quarters.
Business spending reduced overall GDP growth by 0.4 percentage points, its biggest drag on growth since the fourth quarter of 2015. Growth in capital expenditures (capex) has stalled as U.S. companies have shelved expansion plans amid a surge in global uncertainty.
“The economy continues to muddle through at an average pace of growth,” said LPL Financial Senior Market Strategist Ryan Detrick. “While we’re not surprised to see another dull quarter for capex, we’d like to see business spending eventually pick up this late in the cycle. Higher business spending could provide a boost to productivity, and higher productivity could jumpstart GDP growth.”
Unfortunately, we don’t expect to see a material increase in capex growth until the United States and China make more significant progress on the trade front. The U.S.-China limited trade deal could provide some lift as tensions thaw, but we think companies may need to see more evidence of a larger compromise before feeling confident enough to spend.
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