Worrisome Business Investment Numbers

A trader works at the New York Stock Exchange, January 8, 2019. (Brendan McDermid/Reuters)

U.S. GDP grew by 1.9 percent in the third quarter, beating analyst expectations of 1.6 percent growth. These numbers, driven primarily by increased consumer spending, allay concerns of a recession in the near future, but they are well below the Trump administration’s 3 percent target.

Business investment dropped for the second consecutive quarter, reaching its lowest level since 2015. Sizable declines in structures and equipment investments indicate that the stimulus from the 2017 tax cut may be wearing off.

Morgan Stanley analysts attributed the drop in investment to “the slow global growth environment and ongoing trade policy uncertainty.” Indeed, the investment components that saw the largest slowdowns are those most affected by trade uncertainty. At a time of sluggish global growth, American policymakers should soften the blow of cyclical headwinds by encouraging investment, but the administration’s trade policy has sown unease in corporations looking to deploy capital. The Fed’s Wednesday rate cut will smooth things out in the short run, but they will have little ammunition when the economy truly begins to contract. Should the current trade deal fall apart, further declines in business spending could follow.

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