America’s Third-Quarter Outlook Brightens

After a rather dismal first half, the rate of growth of the U.S. economy looks set to pick up in the current period. If the MarketWatch consensus is correct, third-quarter growth could hit the tape at 3% or better.

Besides the economy’s internal dynamics, demand is getting a boost from external factors as well.

We can credit easy money and rock-bottom interest rates for bringing the economy to this point so far. Even fiscal policy has helped — after all, budget deficits have at least some redeeming qualities.

In addition to these, domestic demand is being fueled by a number of other developments that have originated from outside our borders.

Most important are lower prices for gasoline. Although up from their earlier lows, gas prices are well below where they were last year at this time, thus adding billions of dollars of purchasing power to household coffers.

Another, development is the apparent resolution of the Greek crisis. It removes a major uncertainty hanging over many banks and hedge funds, albeit a hard one to quantify.

Part and parcel of this is the rise in the euro EURUSD against the dollar. This makes U.S. goods and services more competitive in world markets, thereby giving a modest lift to our foreign trade accounts.

On a more controversial note, the nuclear deal with Iran has the potential to lower oil prices, since it will remove export restrictions. This will drive all kinds of energy costs down and will help us to become a more efficient economy.

We will get help from another country as well: China. Its slowdown in growth will take pressure off many commodity prices.

Because of developments in Iran and China, our domestic rate of inflation is likely to remain subdued. As a consequence, the Federal Reserve will very likely go slow when it comes to raising interest rates. The money mavens are already on record as expressing concern that inflation might go too low, even slipping into deflation.

Market Watch

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