US economic growth slows in second quarter as trade disputes take toll

US economic growth slowed in the second quarter of 2019 as trade disputes and a global slowdown took their toll, the commerce department announced on Friday.

Revised figures from previous quarters showed the US narrowly missed Donald Trump’s pledge to grow the economy by over 3% last year. The commerce department pegged growth at 2.9% in 2018.

The latest decline was less than expected – thanks to a consumer spending spree – and the report showed signs that there is continuing momentum in the US’s decade-long economic expansion, albeit at a slowing pace.

US gross domestic product (GDP) – the broadest measure of the economy’s health – grew an an annual rate of 2.1% in the second quarter, the three-month period between April and June.

The figure is a marked slowdown in the 3.1% growth that the US achieved in the first three months of the year and comes as other major economies have warned that their growth is slowing too.

But economists had been expecting economic activity to have slowed to below 2% over the last quarter as the US’s ongoing trade disputes with its largest trading partners took their toll and businesses cut back on investments.

Businesses investment declined in the second quarter for the first time since early 2016, according to the report, dropping to a sluggish 0.6% from 4.4% in the first quarter.

Consumer spending, which accounts for more than two-thirds of the economy, rose sharply at annualized rate of 4.3% in the second quarter, up from 1.1% in the first quarter.

READ  Chuck E. Cheese, Peter Piper Pizza parent company files for Chapter 11 bankruptcy protection amid pandemic closings

The GDP data will be one of the last major pieces of economic news that the Federal Reserve will receive before it meets next week. Fed officials have widely signaled that they are intending to cut rates by a quarter percentage point from its current range between 2.25% and 2.5%. It will be the first such cut in over a decade.

Trump has been pressing for a rate cut, an unprecedented move by a sitting president that challenges the Fed’s independence. On Friday he once again attacked the central bank calling it “anchor wrapped around our neck,” on Twitter.

Donald J. Trump

Q2 GDP Up 2.1% Not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck. Almost no inflation. USA is set to Zoom!

July 26, 2019

Although the growth figures support the thesis that the US’s record-breaking 10-year expansion is continuing, there are plenty of signs of trouble ahead. Last month the International Monetary Fund said the deepening trade war between the US and China will cost $455bn (£366.8bn) in lost output next year and Friday’s report makes clear that businesses are cutting back.

Speaking to Congress earlier this month the Fed chairman, Jerome Powell, said “many” Fed officials believe a weakening global economy and rising trade tensions have strengthened the case for a rate cut.

The report has probably strengthened the case for a cut even though growth was better than expected. Josh Bivens, director of research at the Economic Policy Institute, noted that the economy grew just 1.6% in the first half of 2019, down from 3.9% growth between the first half of 2018 and the first half of 2017.

In a research report he wrote there was “plenty to worry about in this report, as it showed pronounced weakness in both residential and nonresidential investment. Residential investment contracted at a 1.5% rate, and this sector has contracted for 18 months straight. The last contraction of housing construction that lasted this long began in the Great Recession.”

The news comes amid clear signs of an economic slowdown in Europe. On Thursday the European Central Bank (ECB) indicated it is preparing to cut short-term interest rates for the first time since 2016 and restart its massive bond buying program.

“This outlook is getting worse and worse,” Mario Draghi, the ECB’s outgoing president, told reporters in Frankfurt. “It’s getting worse and worse in manufacturing, especially, and it’s getting worse and worse in those countries where manufacturing is very important.”

On Friday Russia’s central bank too said it too was cutting rates because of the “the weak dynamics of domestic and external demand”.



Please enter your comment!
Please enter your name here