GDP Growth Decelerates as Manufacturing, Consumer Confidence Fall

GDP growth fell in the third quarter in the United States just as weaker manufacturing data and lower consumer confidence hindered the country’s economic recovery.

GDP growth fell in the third quarter in the United States just as weaker manufacturing data and lower consumer confidence hindered the country’s economic recovery.

Gross domestic product rose 2.1 percent in the third quarter of 2015, coinciding with most analysts’ expectations, after rising 3.9 percent in the second quarter. According to a new study by the Bureau of Economic Analysis, the fall in growth was due to widespread weak demand.  This included “a downturn in private inventory investment and decelerations in exports, in PCE, in nonresidential fixed investment, in state and local government spending, and in residential fixed investment that were partly offset by a deceleration in imports,” according to the BEA.

Weakening private investment and a decline in exports have been consistent themes throughout 2015, both of which partly result from weak wage growth at home and a rising dollar, which cause reduced competitiveness abroad. The United States trade deficit has widened with most trading partners throughout 2015, and analysts expect the gap to increase, as the U.S. dollar gets stronger.

The Federal Reserve strongly suggests that it will raise interest rates in 2015. Such a move could cause the dollar to get even stronger, which would make exports less competitive. These moves run counter to the recently agreed-upon Trans Pacific Partnership free trade agreement. The TPP makes trade between the U.S. and several Asian nations, many of which have exponentially lower GDP per capita than the United States, more robust, and increases demand for American goods and services abroad.

Weak Manufacturing

With low private investment and weak exports, slower manufacturing activity failed to surprise analysts. According to the Richmond Federal Reserve Manufacturing Survey conducted in November, shipments fell, capacity utilization lowered to zero, and the overall manufacturing index fell to -0.3, which indicates contraction. These figures suggest that companies have reduced production and shipping volume, which depresses demand for employees as well as factory capacity utilization.

Consumer Confidence Falls

Alongside weak manufacturing, consumers’ faith in the economic future has diminished. According to a new survey by The Conference Board, consumer confidence fell to 90.4 in November — versus 99.1 in October.

The steep decline reflects recent weaknesses in the job market despite Federal Reserve commentary that the labor market remains robust enough to warrant a rate hike.

“The decline was mainly due to a less favorable view of the job market. Consumers’ appraisal of current business conditions, on the other hand, was mixed,” said Director of Economic Indicators Lynn Franco.

The survey reveals that 26.2 percent of respondents define jobs as “hard to get,” while only 11.6 percent of those surveyed said they expect more jobs to materialize in the months ahead.

“Heading into 2016, consumers are cautious about the labor market and expect little change in business conditions,” said Franco.