WASHINGTON — The U.S. economy is being thrown back on its own devices as sputtering global growth blunts America’s efforts to use exports to help power its expansion – even as the value of the dollar hovers near a record low.
Exports fell last quarter for the first time in 3 1/2 years, according to Commerce Department figures released on Friday, clipping growth by about a one-quarter of a percentage point. The shortfall was made up by increased consumer spending, higher government outlays and gains in residential construction.
Gross domestic product climbed at an annual rate of 2 percent in the third quarter; it rose 1.3 percent in the second.
The shift to domestic drivers of the expansion comes at an opportune moment – and may be a harbinger of better times in 2013, especially if the rest of the world rebounds and the United States avoids the so-called “fiscal cliff’ – automatic tax increases and big spending cuts that go into effect in January if Congress can’t agree on a deficit deal.
“The improvement in the domestic engines of growth will allow us to muddle through the worries on the European side and the Asian side and probably pick up pace next year,” said Joseph Carson, director of global economic research for AllianceBernstein in New York. He sees the economy expanding 2.8 percent in 2013 after rising 2.2 percent this year.
Economic drivers shifting
The pattern of growth so far in the three-year U.S. recovery has been different than in the past, Carson said. Housing and consumption, especially automobile demand, traditionally lead the U.S. out of recessions as low interest rates entice Americans into buying. That didn’t happen this time because consumers were weighed down by debt and the housing market was depressed.
Instead, exports and business investment, which usually lag, powered growth early on, as manufacturers in particular benefitted from a rapid economic rebound in China and other emerging-market nations.
Now the drivers of the economy are shifting. Consumers have reduced debts – household liabilities as a share of income are at their lowest point since 2003, according to Federal Reserve data – and are stepping up spending.
Vehicle sales rose last month to a seasonally adjusted annualized rate of 14.9 million, the highest since March 2008, from 14.5 million in August, according to researcher Autodata in Woodcliff Lake, N.J.
Housing also is picking up. Americans bought new homes in September at the fastest pace in two years as sales climbed 5.7 percent, Commerce Department data showed last week.
“We’re seeing strength in areas that have been lagging,” said Scott Anderson, chief economist at Bank of the West in San Francisco, who correctly forecast third-quarter growth.
Effect of global disorder
Meanwhile, a slump in Europe and slower growth in China is curbing foreign purchases of U.S. products. The trade deficit widened 4.1 percent in August as exports fell to the lowest level since February.
Weakness in the dollar didn’t prevent the 1.6 percent decline in U.S. exports last quarter. The price-adjusted broad dollar index compiled monthly by the Federal Reserve has fallen by about a quarter over the past decade to 83.79 in September, 4 percent above its record low set in July of last year.
The global slowdown, along with concern about the fiscal cliff – more than $600 billion in government spending cuts and tax increases that will kick in at the start of 2013 under current legislation – is prompting companies to cut back on capital expenditures, Anderson added.
Corporate spending on equipment and software was unchanged in the third quarter, the weakest reading in three years, according to last week’s GDP report.
The divergence between domestic and foreign demand was evident in company earnings in the third quarter, with U.S. businesses insulated from the rest of the world doing better than those that are more dependent on sales to Europe and Asia.
Shares of Whirlpool, the world’s largest appliance maker, reached the highest level in more than two years last week after the company lifted its 2012 earnings forecast.
The Benton Harbor, Mich.-based company received about 51 percent of its revenue from North America in its 2011 fiscal year, compared with 18 percent from Europe and 5 percent from Asia.
By contrast, DuPont, the most valuable U.S. chemical maker, posted a smaller-than-estimated third-quarter profit and cut its forecasts, announcing it will eliminate 1,500 jobs. Shares last week fell to the lowest level in 10 months.
About 35 percent of DuPont’s 2011 fiscal-year revenue came from the U.S., 26 percent from Europe and 23 percent from the Asia-Pacific region. Third-quarter sales from continuing operations were down 4 percent in the U.S. and Canada from a year earlier and 12 percent in the rest of the world.
Jay Bryson, senior global economist at Wells Fargo Securities LLC in Charlotte, and Allen Sinai, chief executive officer of Decision Economics in New York, see reason for some optimism for a recovery in exports.
China’s economy, the world’s second largest, looks to have bottomed out after slowing for seven quarters, Sinai said, while Europe “can’t be in a recession forever.”