Why The U.S. Economy May Have Already Peaked For The Year

WASHINGTON - Enjoy it while it lasts.

The U.S. economy grew at a solid 3.1% annual rate in the January-March quarter - a pace that will likely prove to be the high-water mark for the year before growth weakens in the coming months.

That's the assessment widely shared by economists in light of the rising threats facing the U.S. economy, from a raging trade war to more cautious spending by consumers and businesses to a global slowdown. Their collective forecast is that last year's 2.9% growth - the fastest year of expansion since 2015 - will be followed by a more tepid 2.3% gain this year.

Here are three key reasons why:

Pendulum swings back

Half the 3.1% growth rate in the January-March quarter that the government reported Thursday was due to two temporary factors: A surge in business efforts to restock shelves. And a big narrowing in the trade deficit.

In the calculations that produce the nation's gross domestic product, a widening trade deficit subtracts from growth. By contrast, a narrowing trade deficit, like the one last quarter, raises growth. Yet economists predict that the pendulum will swing back to a wider trade gap in the current April-June quarter.

Fading stimulus

President Donald Trump's signature domestic achievement was the passage of a $1.5 trillion tax cut in December 2017. Billions in additional spending for domestic and military programs that Congress approved in early 2018 also delivered a stimulative lift to the economy.

But the initial surge from the tax cuts and the increased government spending are waning now. That's a major reason why economists think growth this year will slow to a modest 2.3% annual pace, in line with the pattern of the past decade.

Ominous trade war

The gravest perceived threat may be the escalating trade war between the United States and China, the world's two largest economies. Stock markets have been falling since talks broke off this month and the Trump administration announced that it was boosting tariffs on $250 billion in Chinese goods. Beijing vowed to retaliate against U.S. products as it has done with previous Trump tariffs.

For economists, the concern is that the disruptions in trade could become severe enough to trigger a recession in an already weakening economy.

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