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3 Reasons Why the Strong GDP Report Might Actually Be Good For Donald Trump

October 28, 2016, 5:09 PM UTC
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The U.S. economy grew at an annual rate of 2.9% in the third quarter of 2016, above the consensus expectations of 2.6%.

It was also the fastest rate of growth since the third quarter of 2014, and pundits are already declaring the headline number as good news for Hillary Clinton, who is running a campaign that promises a continuation of President Barack Obama’ economic policies. Trump has made low GDP growth—he often calls it the 1% economy—as a talking point for his campaign.

But despite the faster growth, Trump and Republicans in general may be wise to take a deeper look at the report. Even though growth is nearly 3% for the first time in two years, there are a lot of pretty obvious signs of weakness in the U.S. economy. Here are the top three:

Investment continues to lag behind the broader economy.

Aerial view of houses in neighborhoods, Seattle, Washington, United States
Aerial view of neighborhood houses in Seattle, Washington.Photograph by Space Images — Getty Images/Blend Images
Photograph by Space Images — Getty Images/Blend Images

While investment in nonresidential structures was up a solid 5.4%, spending on equipment fell for the fourth consecutive quarter. Homebuilding also fell off a cliff, dropping a whopping 6.2% after falling last quarter as well. Demographics, rising employment, and wages all suggest that this shouldn’t be happening, but the homebuilding industry has proven that it is still wary of, or unable to, get aggressive about new construction.

Taken altogether, gross private investment fell by 2.7%, the third consecutive quarter in which that measure saw declines. This suggests that homebuilders and private businesses see little reason to pour money back into their businesses, presumably because they don’t foresee increased demand for their products in the future. Brian Schaitkin, Senior Economist with The Conference Board argues in a research note Friday morning that this “indicates that the economy is unlikely to exceed a 2% trend growth in the near term.”


Growth in exports looks unsustainable.

China Total Value Of Foreign Trade Decreased By 6.9% To 11.53 Trillion RMB For First Six Months
A worker walks by containers at Qingdao Port on July 11, 2015 in Qingdao, Shandong Province of China.VCG via Getty Images
VCG via Getty Images

U.S. exports got a boost from flooding in Argentina, which caused the country to dramatically increase their imports of American soybeans, according to Schaitkin. But a boost from from temporary weather effects can’t be counted on to boost growth in the future.

Consumption remains sluggish

Retailers Offer Deep Discounts On Annual Black Friday Shopping Day
Consumers are expected to be the shining star of third-quarter GDP numbers.Photograph by Kena Betancur—Getty Images
Photograph by Kena Betancur—Getty Images

Although employment growth continues to be solid, and the just-released employment cost index shows an acceleration of wages from 2% annually to 2.3%, consumers are still cautious to go all in on the economy. As Neil Dutta, Head of Economics at Renaissance Macro writes in a research note to clients, “The largest miss relative to our baseline was in consumer spending. We expected growth of 2.5%-to-3% but in [third quarter], real consumption ran just 2.1%.”

This follows a retail sales report from last week, which showed that core sales—which exclude volatile automobile and gasoline sales— rose by just 0.1% in September, again below economists expectations. If the consumer doesn’t believe that the economic and employment expansion we are seeing is built to last, it could become a self fulfilling prophecy driven by sluggish consumer spending.