U.S. economy slows in second quarter; consumer spending robust
02 September, 2019, 19:29
A real estate magnate, Trump campaigned on his stewardship of the economy, so signs growth is faltering could potentially jeopardise his chances at winning a second term in next year's elections.
The economy is also losing speed as the stimulus from the White House's $1.5 trillion tax-cut package and a government spending blitz fades.
Apart from that, other U.S. data revealed on Thursday (August 29th) had rekindled hopes of averting an imminent recession, as trade deficit had narrowed sharply in July while United States exports had also witnessed a rebound.
Concerns also abound about a global economic slowdown.
Companies investing in the second quarter have so far done little to reduce the double-digit unemployment rate.
Economists had correctly anticipated the size of that revision, but did not foresee a large upwards revision to the government's estimate for household consumption - the biggest component of aggregate demand - during the period, from 4.3% to 4.7%, which thus contributed 3.1 percentage points to the quarterly pace of growth, up from the 2.85 points initially estimated.
While manufacturing and housing data suggest the economy continued to slow early in the third quarter, strong consumer spending, backed by the lowest unemployment rate in almost 50 years, has eased some concerns about a downturn.
The economic expansion is under threat from the U.S. President Donald Trump administration's trade policy uncertainty, with economists warning of a recession in the next one or two years.
Yet the data could increase caution among market players who have been expecting the central bank to maintain an aggressive pace of interest rate cuts, following a 50 basis points reduction to the key rate last month, she added.
Gross domestic income, adjusted for inflation, rose 2.1 percent, following 3.2 percent in the first quarter. Economists predict that overall GDP growth for 2019 will be about 2.5% - below the 3% that the Trump administration predicted. That was the fastest since the fourth quarter of 2014 and was an upward revision from the 4.3% pace estimated last month. Eventually, President Trump's tariffs on hundreds of billions of dollars in imports could bring higher prices and lower consumer spending. In addition to the low base from prior quarters, the increase was due to construction and domestic output of capital goods, according to Claudia Dionisio, who coordinates the GDP study for the statistics institute.
In a separate report Thursday, the Labor Department said the number of Americans filing claims for unemployment benefits, seen as a good proxy for layoffs, rose by 4,000 last week to a still-low 215,000.
For all of 2019, economists estimate that GDP will slow to around 2.2 percent and then drop to below 2 percent in 2020 as the economy faces headwinds from the global slowdown and the effects from the escalating trade war with China.
Net exports subtracted 0.72 point, more than the initial drag of 0.65 point, while nonresidential fixed investment remained a slight drag. On top of that, U.S. businesses had shored up inventories last month, triggering possibilities that the consumer demands might remain strong.
Business investment declined at an unrevised 0.6% rate in the second quarter.
The revised figures confirmed the slowdown from the start of the year - with far weaker housing, oil exports, tourism and local government spending. Government investment growth was revised down, and spending on homebuilding contracted again for the sixth straight quarter.
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