The Ups and Downs of the US Economy

The United States economy decelerated in the third quarter of this year as the world’s largest economy continued to struggle to return to pre-crisis levels of growth.  Moreover, while many domestic factors in the United States remained positive, most external factors continued to hold down the US economy from reaching its full potential.  For example, US export growth has been severely weakened by the fact that most of the US’ key export markets continue to struggle, while the US dollar’s strength against most other currencies continues to weaken US export competitiveness.  Meanwhile, the slowdown in China, the continued weakness of the European economy and the struggles of many of the world’s emerging markets mean that the global economy is currently very dependent upon the US economy in order to generate growth.

In the third quarter of this year, the United States economy expanded by 2.0% on a year-on-year basis (1.5% on an annualized quarter-on-quarter basis), a decline from the much higher rate of growth recorded in the second quarter.  This disappointing result was largely the result of a temporary slowdown in business inventory building, a decline in private domestic investment and a slowdown in government spending in the third quarter.  Moreover, the expected increase in export growth in 2015 has failed to materialize as a result of the aforementioned factors.  On the positive side, consumer spending in the United States continued to grow at a healthy pace in the third quarter of this year as US consumers remain one of the leading drivers of growth for the global economy, even if consumer spending levels in the US remain below their full potential.

For the United States economy, the third quarter results are a sign that, while the US economy continues to outperform most other developed economies, its recovery is not as robust as had been hoped for.  Barring an unforeseen massive spike in economic growth in the fourth quarter, economic growth in the United States will be below 3% for the tenth consecutive year, the first time in that this has occurred in the history of the US.  This prolonged period of relatively poor economic results is due primarily to the impact of the financial crisis on the domestic market of the United States and, even as the US nears full employment, many sectors of the US domestic market continue to struggle.  Add to this the fact that the global economy has proven to be an additional drag on the US economy, and it is little surprise that the US economy has struggled to achieve higher rates of growth over the past decade. 

While the growth rates recorded in the United States in recent years have fallen a little short of expectations, there are a number of reasons why the outlook for the US economy remains positive.  First, the near-term outlook for the US economy remains very positive and growth rates are likely to exceed 3% on a year-on-year basis in late 2015 and early 2016, driven by strong growth rates on the domestic market in the US.  This will allow the US to remain one of the stronger large economies in the world.  As a result, the US economy will contribute almost as much to global economic growth as the Chinese economy will over the near-term, provided this expected acceleration of US economic growth occurs.  Given the uncertainty facing China and the weak growth being recorded in many of the world’s other leading economies, the US has the opportunity to provide a much-needed spark for the sluggish global economy.  Without a spark from the United States, the global economy’s recent run of relatively poor rates of growth will certainly continue over the near-term.