The U.S. economy grew faster than originally reported in the third quarter, but fresher data show that growth is slowing sharply in the final three months of the year.
The Commerce Department said Thursday that gross domestic product grew at a 3.5 percent annual rate in the third quarter, up from the last estimate of a 3.2 percent pace. That was the fastest pace of growth in two years.
The better showing was the result of upward revisions to the level of business investment in structures and intellectual property products. Spending by state and local governments also was stronger than reported in the previous estimate.
The strong third-quarter showing followed an anemic 1.4 percent gain in the second quarter. And a closer look at the latest numbers suggest the growth spurt won’t last.
Nearly a full point of the gain came from a surge in soybean exports, much of which was shipped to China, an event that won’t be repeated in coming quarters.
That may not sound like a lot. But nine-tenths of a percent of an $18.6 trillion economy works out to $167 billion. That’s roughly the size of Iowa’s annual economic output.
U.S. farmers are on track for a record soybean harvest of more than 4 billion bushels. At the same time, a poor harvest in Brazil boosted demand for the U.S. crop from big importers like China.
That’s good news for U.S. farmers. But the resulting surge in net exports is a one-time boost that’s unlikely to be repeated.
Most forecasters believe the hot pace of growth has already begun cooling as the year draws to a close, and expect the annualized rate to fall closer to 2 percent when the fourth-quarter data are tallied.
Economists at the New York Federal Reserve, for example, are estimating fourth-quarter growth of just 1.8 percent, based on their “Nowcast” or more recently reported data.
Forecasters at the Atlanta Fed are somewhat more upbeat, pegging their fourth-quarter forecast at 2.6 percent, based on their model of the latest economic data.
At 3.5 percent, the annualized pace of growth in the third quarter is roughly the level promised by President-elect Donald Trump during the election campaign. In September, Trump said his proposed tax cuts and deregulation would add 25 million jobs over 10 years and boost economic growth to 3.5 percent.
“My great economists don’t want me to say this, but I think we can do better than that,” he said in a speech to the Economic Club of New York.
Many business economists, though, are skeptical. A recent survey found they expect the U.S. economy to pick up speed next year, but not as quickly as Trump promised during the election campaign.
In their latest economic outlook, forecasters surveyed by the National Association for Business Economics said they expect U.S. gross domestic product to end 2016 with an average annual growth rate of just 1.6 percent, before strengthening next year to a 2.2 percent annual growth rate.
But the NABE panel expects that growth won’t get much faster, in line with the average pace of growth since the end of the Great Recession.
“The slow pace of growth in recent years may be the ‘new normal,’ as more than 80 percent of survey panelists estimate that the potential rate of economic growth will be 2.5 percent or lower over the next five years,” said NABE President Stuart Mackintosh in a release.