“It’s not just the GDP report. We’ve had a really steady stream lately, whether it’s GDP or ADP or [jobless] claims or retail sales or confidence measures,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “That shows up in the Atlanta Fed [projection]. How many times in this entire recovery have we put back-to-back 3-plus-percent quarters together? We’ve done it, but not a lot.”
Indeed, the trend calls into question Wall Street’s projections that economic growth this year will be closer to 2 percent; The International Monetary Fund estimates U.S. growth at 2.1 percent for both 2017 and 2018.
In the early part of the year, it looked like those estimates would be correct. GDP increased just 1.2 percent in the first quarter, while job gains slowed through the springtime and wage growth remained mired around the same levels despite an unemployment rate that fell to a 16-year low of 4.3 percent.
Trump’s pro-business agenda of lower taxes and increased infrastructure spending has stalled in Congress, though he has been able to enact some regulatory rollbacks through executive orders.
Growth has persisted through the year despite the Washington gridlock, and the stock market has posted a series of record highs. At the same time, coordinated global growth has taken hold for the first time in decades.
“The rest of the world is doing pretty well, too,” Paulsen said. “If the stock market goes on to new highs, the story again will be we had all this stuff thrown at it but the data was too good, the foundation of fundamentals was too good again to crack it.”
Still, skepticism remains among Wall Street economists.
JPMorgan Chase said it was not altering its growth projections, though it did acknowledge “upside risk” to its forecast for third-quarter gains of 2.25 percent.
There’s also worry that Hurricane Harvey could put an even bigger crimp in the U.S., though most economists figure that damage at worst would be a few tenths of a percentage point off GDP.
“The risks right now are kind of balanced because there is the potential for at least a temporary hit from the hurricane,” said Gus Faucher, chief economist at PNC. “I’m not reading too much into one quarter of 3 percent growth. We had a boost from investment that may not persist. To me the economy now looks pretty similar to what it looked like before we got the revision.”
Left yet to be resolved is when the economy can show some wage growth and crawl out of its meager productivity gains. There’s also the continued skills gap that exists for employers trying to find the right workers to fill higher-level jobs, and some basic demographics of an aging workforce.
That could mean Trump will have to focus on getting his agenda through if the economy is ever to achieve consistent, breakout growth.
“Fiscal stimulus would be terrific,” said Dan North, chief economist at Euler Hermes. “I don’t think there’s any way we’re going to get to 4 percent growth except may one or two particular quarters. You’ve got trends that are really going to make it difficult.”