US economy grew at a 3.2 percent clip in third quarter

The U.S. economy expanded at a 3.2 percent annual rate during the July through September quarter, which was slightly slower than forecast partly on lower consumer spending, but is still the fastest pace since early 2015.

The third and final estimate of third-quarter growth, which was revised down from 3.3 percent in the second estimate, represents the best two back-to-back quarters since 2014, the Commerce Department reported on Thursday.

The economy expanded at a 3.1 percent rate in the April-June period.

{mosads}Overall for the year, the economy is expected to post about 2.3 percent annual growth, which is up from 1.6 percent in 2016 but would be lower than 2014 and 2015. 

Still, the economy maintained solid growth despite the effects of major hurricanes Harvey and Irma, which battered Texas and Florida and other areas across the South. 

Consumer spending, which represents about 70 percent of economic growth, ticked down slightly to an annual pace of 2.2 percent, which is 0.1 percentage points less than the November estimate.

President Trump has touted the nation’s pace of economic growth as proof that his policies are spurring a faster expansion of the healthy economy he inherited from former President Obama.

Trump and congressional Republicans this week are hailing the passage of their tax-code overhaul as an avenue to more robust growth for the future. 

Economists say the tax package will likely boost the economy over the next couple years, but any sustained long-term growth from lowering corporate and individual tax rates are expected to fade before the end of the decade because of higher debt combined with increasing interest rates.

Mark Zandi, chief economist at Moody’s Analytics, is forecasting 2.9 percent growth for 2018, slightly higher than the 2.5 percent expected without the tax bill. But by 2019, the rate of growth will fall to 2.2 percent and then 1 percent in 2020. 

“The deficit-financed tax cuts will act like fiscal stimulus, temporarily pumping up growth,” Zandi wrote in his forecast.

But he added that “the tax legislation will also fail to provide a meaningful boost to long-term growth.”

While the tax bill will temporarily provide a lift to the economy, there is a concern about overheating, especially with the labor market at or near full employment.

“Even without tax cuts, unemployment was set to fall below 4 percent, but with them it could fall into the low threes,” Zandi said.

The only other time unemployment has dropped that low was during the Korean War in the early 1950s, he said. 

A separate report on Thursday showed that unemployment claims rose 20,000 to a seasonally adjusted 245,000 but are still in line with a healthy yet tightening labor market.

Jobless claims have remained below the 300,000 threshold, a sign of a stable labor market, for 146 straight weeks.

The economy added 228,000 jobs in November and the jobless rate held at 4.1 percent, a 17-year low. 

The only way the tax legislation would lift long-term growth would be through the cost of capital for businesses, which will fall under lower marginal corporate rates, Zandi said. 

But the “higher interest resulting from the poor timing and deficit-financing of the tax cuts increases their cost of capital, washes out most of the benefit,” he said. 

In the latest gross domestic product report, business investment in equipment surged to a 10.8 percent rate, the strongest performance in three years.

State and local government spending also rose slightly, increasing 0.2 percent.