US Economic Growth Expected To Slow In Q4

Recession still appears to be a low-probability risk on the near-term horizon for the US economy, but growth looks set to downshift again in the final quarter of the year. The outlook is based on TMC Research’s preliminary nowcast of gross domestic product (GDP) for Q4.

Today’s nowcast indicates a 2.0% increase in GDP for the October-through-December period in annualized real terms. If correct, growth will continue to slow from Q3’s 2.8% rise and Q2’s strong 3.0% advance. In turn, a second quarter of lesser growth could raise warning flags for 2025.

The counterpoint is that the incoming Trump administration is expected to favor pro-growth policies that could strengthen economic activity. Among the policies he’s advocated: lower taxes and changing rules to promote greater domestic energy production – factors that some economists say will promote faster growth. Keep in mind that some of Trump’s policy agenda will require Congressional approval, which may not materialize swiftly, even if Republicans control both chambers of Congress. (As of this writing, the GOP has won back the Senate and looks likely to regain the House, although the latter has yet to be formally announced.) As a result of legislative ambiguity on timing and details, the impact of expected policy changes on future growth, especially in the intermediate term, remains uncertain.

Meantime, a key factor that suggests the US economy is still resilient in the final months of this year: consumer spending. Real personal consumption expenditures strengthened in Q3 for a second straight quarter. The faster growth helped offset softer conditions elsewhere in the economy. Note, too, that the pickup in consumer activity over the past two quarters contrasts with a slowdown in overall economic activity, based on GDP. Because consumer spending represents nearly 70% of US economic activity, trends in personal consumption expenditures are a crucial factor for GDP. On that score, the recent runup in spending suggests the consumer sector will continue to support economic growth for the near term.

TMC Research’s GDP nowcast model uses the following data sets:

· US consumer price index (inflation)

· Unemployment rate

· Real personal consumption expenditures

· Industrial production

· Non-farm private payrolls

· Manufacturing and trade industries sales

· Real personal income

· Net exports

· Housing starts

· New single family home sales

· Wholesale inventories