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Why optimism about the US economy’s strength has dimmed

WASHINGTON – Consumers, fueled by job growth, cheaper gas and higher home values, would drive the U.S. economy through a global slump.

That was the widespread hope just a few months ago. Now, doubts are growing that the United States can withstand economic pressures flowing from overseas. Economies in China, Canada, Brazil and Europe are struggling. Canada, the largest U.S. trading partner, is in recession. Americans have been holding back on spending even though lower gas prices have put more cash in their pockets. Employers have slowed hiring and held down pay. Home sales have flattened. And the U.S. economy has been hobbled by a stronger dollar, which makes U.S. goods costlier overseas and is depressing corporate profits.

“There’s no question that the economy is losing momentum,” said Mark Vitner, an economist at Wells Fargo. “The question is whether it is temporary … or is it something that will prove more lasting?” As recently as early August, economists had sketched a bright picture for the rest of the year and, as a result, thought the Federal Reserve would be confident enough to raise interest rates from record lows in September. The Fed chose not to. And many economists and investors have pushed back their forecast for a Fed rate hike into next year.

The U-turn in sentiment happened fast. It occurred soon after China made a clumsy attempt last summer to prop up its stock prices and then devalued its currency. Financial markets plunged on fears that China’s once-sizzling growth was shakier than anyone had thought and would slow economies elsewhere.

This week, China said its economy’s growth slid to 6.9 percent in the July-September quarter from a year earlier, the slowest pace in more than six years.

As China’s appetite for oil, copper, iron ore and other commodities has fallen, so have prices for those goods. One consequence is that U.S. energy companies, squeezed by lower oil prices, are buying fewer factory goods. At Ahaus Tool & Engineering in Richmond, Indiana, orders for components it sells to drilling equipment makers have dropped.

Gas drillers “are cutting their costs, which means they’re slowing down on buying new components,” said Kevin Ahaus, the company president. “We’re not seeing much business there.”

U.S. factories cut production for a second straight month in September. Manufacturers are being hurt by a declining appetite for their goods overseas and by cheaper foreign-made products. U.S. exports are down this year compared with 2014, the first year-over-year decline since the Great Recession officially ended in 2009.

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