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Q3 GDP Continues Moderate Growth

Economic activity in the U.S. grew at an annualized rate of 1.9% in Q3, down very slightly from 2% in Q2, but better than economists' expectations of 1.6%. The better-than-expected data was the result of continued consumer spending as well as government expenditures, according to the Commerce Department.

 

While the consumer drove the growth in the economy the glaring negative in the report is business spending and investment as private domestic investment continued to fall at -1.5%, but at a slower pace from Q2 of - 6.3%. Investment on buildings and structures drove most of that decline. Residential investments however grew at 5.1% and reversing the previous quarter's -3%.

When the trade issues are resolved we expect to see a reversal to growth in business investment and spending. But, in 2017 we posited that a skilled worker shortage could eventually limit US GDP growth and that could now be an issue. According to Chad Moutray, chief economist at the National Association of Manufacturers, “for manufacturers, the biggest challenges remain finding skilled labor and trade uncertainties, which make it difficult to hire and expand business operations." Most of those jobs do not require a college degree and investment in 'tech schools' continues to be warranted in our view.

 

For the last decade, home building has been running at only half the pace of the previous 2 decades, if or when it returns to the previous pace it could easily add another 1% to GDP annually and we see that as likely as the Millenial demographic wave marries, have children and buy homes.

 

As trade issues get resolved, we solve the worker shortage, Millenials move through their 'economic lives', given the current low level of unemployment economic growth should continue for the foreseeable future.