An increase in goods made but not sold helped, but so did global growth and healthy corporate earnings. Protective policies could put the trend at risk.
It turns out that the United States economy is doing just fine without tax cuts. Initial estimates show the economy expanded at an annual rate of 3 percent in the third quarter, despite the effect of Hurricanes Harvey and Irma. An increase in goods made but not sold helped, but so did global growth and healthy corporate earnings. Protective policies could put the trend at risk.
Third-quarter growth was a pleasant surprise after economists projected expansion of 2.5 percent. Growth in consumer spending, which makes up two-thirds of economic output, slowed to 2.4 percent but is expected to rebound as the effects of the hurricanes fade. And rising inventories contributed just over 0.7 percentage point to growth, in what could be a sign that companies think consumer demand will warm up.
There are other positive signs. Business investment, which had been lagging but improved in recent months, came in at a healthy 3.9 percent. Exports increased 2.3 percent in the third quarter, which added more than 0.4 percentage point to economic growth. It was aided by global expansion, with world economic growth in sync for the first time in years and Europe catching up with the United States. The International Monetary Fund projected that the global economy would increase 3.6 percent in 2017 and grow 3.7 percent the next year.
President Trump has promised to cut the corporate income tax rate to 20 percent – but whether or not he succeeds, companies are performing well. The Nasdaq reached a record high (not adjusted for inflation) on Friday morning after tech groups like Amazon and Microsoft reported robust third-quarter earnings. On top of that, the United States is nearly at full employment with a jobless rate of 4.2 percent.
Past form suggests Mr. Trump will take credit. True, the nearly 20 percent rise in the Standard & Poor’s 500-share index since his election happened partly because of the hope of tax cuts. But most of the positive economic trends are occurring without major legislative activities. The biggest risk to this outlook is harmful trade policies, including a disintegration of the North American Free Trade Agreement, for which negotiations aren’t going well. The best that can be said is that Mr. Trump has not yet done the economy harm.
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