U.S. Economy Continues To Grow At Strong Pace, But There Are Signs Of Potential Trouble The U.S. economy grew at a strong 3.5 percent in the third quarter, powered by free spending consumers. The economy is on pace to grow at more than 3 percent this year for the first time since 2005.
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U.S. Economy Continues To Grow At Strong Pace, But There Are Signs Of Potential Trouble

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U.S. Economy Continues To Grow At Strong Pace, But There Are Signs Of Potential Trouble

U.S. Economy Continues To Grow At Strong Pace, But There Are Signs Of Potential Trouble

U.S. Economy Continues To Grow At Strong Pace, But There Are Signs Of Potential Trouble

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  • <iframe src="https://www.npr.org/player/embed/661136962/661136963" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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The U.S. economy grew at a strong 3.5 percent in the third quarter, powered by free spending consumers. The economy is on pace to grow at more than 3 percent this year for the first time since 2005.

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The U.S. economy continues to grow at a strong pace thanks to healthy spending by consumers and the government. The Commerce Department said today that the growth rate was 3.5 percent during the quarter. But NPR's Jim Zarroli reports there were signs of potential trouble, including weak business spending.

JIM ZARROLI, BYLINE: As he often does, President Trump painted today's numbers as historic and unprecedented.

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PRESIDENT DONALD TRUMP: They just announced an estimate of 3.5. And these are numbers that were not even thought about.

ZARROLI: In fact, the growth rate was only a bit better than most economists expected, and it was a drop from the 4.2 percent growth rate in the second quarter. Still, the numbers were impressive. Former White House economist Jared Bernstein says the strong showing reflects the fact that so many people are in the job market.

JARED BERNSTEIN: Lots of people are working and drawing paychecks. Even if those paychecks aren't growing as fast as we might like, that's going to fuel economic growth. And in this report, in fact, the strongest sector was consumer spending.

ZARROLI: Americans spent at an especially fast rate during the quarter. They took more trips and ate out in restaurants more. Elie Maalouf is Americas CEO of IHG, the hotel group that owns Holiday Inn and Kimpton, among other brands, which has been opening up new hotels at a rapid pace.

ELIE MAALOUF: We set records around Labor Day and Memorial Day this year and the Fourth of July in terms of travel. And so they're spending more per trip, and they're spending more with us.

ZARROLI: But it wasn't just people who were spending more. Government spending was also up. Congress passed a bipartisan spending bill in February, a bill that Trump signed even as it was cutting taxes on businesses and individuals. Defense spending in particular was high. Bernstein says that has an impact on the economy.

BERNSTEIN: All that deficit spending shows up in GDP, and that's helping to juice the growth rate.

ZARROLI: For all the good news in today's reports, there were some disquieting signs. Business investment spending grew at an annual rate of just eight-tenths of a percentage point, a meager number. Despite the big cut in business taxes, there was little evidence in today's report that it has led to more investment spending by companies. Gregory Daco is chief U.S. economist at Oxford Economics.

GREGORY DACO: When you take a look outside of the consumer realm, you're starting to see some headwinds appearing for the U.S. economy, in particular when it comes to business activity.

ZARROLI: Those headwinds include a Federal Reserve that is steadily raising interest rates. Higher rates tend to dampen spending by people and businesses over time, and there are already signs of weakness in the housing and car markets. Daco also cites a gradual slowing in the global economy in Europe and Asia. Meanwhile, the stimulus from the tax cuts should begin to wane by next year. Daco says that should bring the growth rate under 3 percent next year.

DACO: We should expect to see somewhat slower momentum, but overall, the economy is still doing quite well.

ZARROLI: Another question mark hanging over the economy is trade. There is what Daco calls a growing spirit of protectionism right now. The US has already imposed tariffs on $250 billion in Chinese imports, and China has retaliated. There's no telling what impact that will have, but for now, Americans are working and spending, and that is keeping the growth rate strong. Jim Zarroli, NPR News.

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