Can the US Economy Sustain 3% Growth? The Answer is Yes

1. How the US Economy Can Sustain 3% Growth
2. The Economy Was Stronger Than Expected in the 3Q
3. New Home Sales Surged to 10-Year High in September
4. September Durable Goods Orders Up 8.3% Over Last Year
5. How 3% Growth Affects the Fed’s Rate Hike Thinking

How the US Economy Can Sustain 3% Growth

The US economy just turned in its second consecutive quarter of 3% growth in Gross Domestic Product, to the surprise of most forecasters and the mainstream media. This despite the negative effects of two major hurricanes hitting the southern US late this summer.

With hurricane rebuilding efforts underway in Texas, Louisiana and Florida, retail sales, industrial production and other indicators are already showing acceleration. This suggests we could see another quarter of 3% growth or better for the final three months of this year.

The Conference Board’s Consumer Confidence Index, the Investor’s Business Daily/TIPP Economic Optimism Index, the National Association of Manufacturers survey and the Institute for Supply Management Index all report stronger optimism and rising factory output. Overall optimism hasn't been this high in over a decade.

The current unemployment rate at 4.2% is the lowest since before the financial crisis. Total employment has jumped more than 2.2 million since Trump entered office. Even the broadest US unemployment measure, the so-called U-6, now stands at 8.3% – its lowest level since June of 2007 before the Great Recession.

Meanwhile, all the major stock market indexes are hitting record high after record high, with the Dow Jones Industrial Average topping 23,000 for the first time this month – up over 30% since last November. The stock market is generally a reliable (but not perfect) predictor of future economic activity. Its message today is clear: Expect more growth.

The question is whether 3% or higher growth is sustainable, and I believe it is. I think it will be even more likely if Congress passes meaningful tax reform just ahead, which is looking more likely now that a (bloated) federal budget has been passed.