USA economy slows in second quarter; consumer spending robust

USA economy slows in second quarter; consumer spending robust

The nation's gross domestic product - the broadest gauge of economic health - grew at a moderate 2 percent annual rate in the April-June quarter, the Commerce Department reported Thursday.

Declining business investment was the main driver for the slowdown, while robust consumer spending added to growth.

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.

Residential investment shrank at a 2.9 percent pace that was initially reported as a 1.5 percent drop.

After the Fed cut interest rates July 31 for the first time in a decade, Chairman Jerome Powell noted at the Jackson Hole symposium August 23 that the following weeks "have been eventful" with Trump's latest tariff threats and further evidence of a global slowdown.

"The U.S. economy was in good shape in the second quarter, but the outlook has changed substantially in the third quarter, with the economy set for slower growth in the near term", Gus Faucher, chief economist at PNC, said in a note.

The government will revise GDP once more at the end of September before it releases third-quarter data.

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The deterioration in trade relations between the two economic giants has roiled global stock markets and triggered an inversion of the U.S. Treasury yield curve, fanning fears that the longest economic expansion in history was in danger of being interrupted by a recession.

Trump has by turns denied that the U.S. economy is weakening or sought to blame the Federal Reserve for failing to cut interest rates fast enough. The estimate is a tick lower than the government's initial estimate a month ago of 2.1% annual growth.

The results prevented Brazil from falling into recession, which occurs when the gross domestic product (GDP) growth is negative for two consecutive quarters, in conjunction with monthly indicators like employment. They are forecasting growth will slow even further next year and they say a recession can't be ruled out.

In the April-June period, consumer spending shot up to an annual rate of 4.7 percent, the best showing since the final quarter of 2014.

A 3.2 percent jump in fixed investment and a 0.7 percent rise in industrial production helped drive the expansion, while the services sector grew by 0.3 percent, IBGE said. The president has pledged to achieve GDP growth at annual rates of 3% or better.

The president, who last week called Federal Reserve Chairman Jerome Powell an "enemy", has been demanding that the Fed cut rates by a full percentage point - a proposal that most economists regard as wildly excessive. American exports have been hurt by the retaliatory tariffs China and other countries have imposed on USA soybeans and other products. Weak capital goods imports suggests business investment could remain subdued after contracting in the second quarter for the first time since the first quarter of 2016. A report from the Labor Department on Thursday showed the number of Americans filing for state unemployment benefits increased slightly last week.

Analysts had expected 0.2 percent growth. Spending on homebuilding contracted for a sixth straight quarter, the longest such stretch since the Great Recession.