Economy slowed to 2.1% growth in 2nd quarter
Slowdown linked to global weakness, U.S.-China trade war
The U.S. economy slowed sharply in the April-June quarter even as consumers stepped up their spending.
The gross domestic product, the economy’s total output of goods and services, grew at a 2.1% annual rate last quarter, down from a 3.1% gain in the first quarter, the Commerce Department estimated Friday.
But consumer spending, which drives about 70% of economic activity. The resurgent strength in household spending was offset by a widening of the trade deficit and slower business inventory rebuilding. Those two factors combined pared annual GDP last quarter by 1.5 percentage points.
Economists also noted that business capital investment, which has been strong for the past two years, fell at a 0.6% annual rate in the April-June quarter, the first decline in three years. That weakness likely reflects, at least in part, a reluctance by businesses to commit to new projects because of uncertainty surrounding President Donald Trump’ s confidence shaking trade war with China.
Indeed, most analysts think the U.S. economy could slow through the rest of the year, reflecting both global economic weakness and the trade war between the world’s two largest economies.
That is one key reason why the Federal Reserve is widely expected to cut interest rates next week for the first time in more decade and two signal that it may further ease credit in the months ahead.
On Friday, besides issuing its first of three estimates of growth in the April-June quarter, the government reported that the economy grew more slowly in 2018
than it had previously estimated. As part of its annual revisions to GDP, the government downgraded its estimate for 2018 growth from 3% to 2.5%. President Donald Trump had frequently boasted of the 3% growth figure as evidence that his policies have invigorated the economy.
For the January-March quarter, a narrower trade deficit and a surge in business restocking had contributed 1.3 percentage points to the 3.1% annual gain. But economists had cautioned that this strength was likely to be temporary.
For the second half of this year, economists say they think GDP will grow at a modest annual rate of 2% or slightly lower, leading to growth for the full year of around 2.5%. That would be down from 2018 growth of 2.9 percent, which had been the best showing since a similar rise in 2015.
That would be a disappointment to the Trump administration which is forecasting that Trump’s economic policies of tax cuts, deregulation and tougher trade enforcement will lift the U.S. economy to sustained gains in coming years of 3% or better.
Trump often cites the economy’s performance at his campaign rallies, saying his policies have lifted the economy out of a decade-long slowdown he blames on the wrongheaded policies pursued by the Obama administration.