The U.S. economy grew more slowly in the spring, as lower levels of
business investment cancelled out robust consumer spending. Many
economists expect this trend to continue, dragging growth further down
for the rest of the year.To get more
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The gross domestic product, the broadest gauge of economic activity,
grew at a moderate 2% annual rate in the April-June quarter, the
Commerce Department said Thursday. That's down from a 3.1% gain in the
first quarter. The estimate is a tick lower than the government's
initial estimate a month ago of 2.1% annual growth.
One encouraging sign is that consumer spending, which drives about
70% of growth, accelerated last quarter at the fastest pace in nearly
five years. At the same time, business investment, which has weakened in
the face of President Donald Trump's trade wars, was revised lower and
subtracted from growth in the April-June period.
The president has pledged to achieve GDP growth at annual rates of
3% or better. But economists predict that GDP, which hit 2.9% growth
last year, to slow sharply. The expectation is that annual growth in the
current July-September quarter is slowing to around 1.8% and that the
pace in the October-December quarter will be similar.
For all of 2019, economists estimate that GDP will slow to around 2.2% and then drop to below 2% in 2020.
"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 biggest factor in the government's downward
revision for the April-June quarter was a smaller gain in spending by
state and local governments and fewer export sales. American exports
have been hurt by the retaliatory tariffs China and other countries have
imposed on U.S. soybeans and other products. That drop was offset by
the increase in consumer spending to a rate of 4.7%, up from an initial
estimate of 4.3%.
Business investment spending turned negative in the second quarter,
falling at a 0.6% annual rate, which many economists believe occurred
because of the trade wars increasing business uncertainty about the
future.
A slowdown in annual growth to 2.2% would be near the 2.3% annual
gains seen since the decade-long expansion began in June 2009. The
recovery became the longest in U.S. history last month but analysts have
begun to worry whether trade wars, plunging stock markets and such
factors as an inverted yield curve might be signaling growing risks of a
recession.Mark Zandi, chief economist at Moody's Analytics, said he is
not forecasting a recession in the next 18 months but said one can't be
ruled out, with the greatest risk coming from the U.S. trade war with
China.
"If the president continues to ratchet up the rhetoric and his
tariffs on China, it will continue to unnerve business people who are
already being more cautious with their investment plans," Zandi said.
"The risks of going into a recession are high if the president keeps
escalating his trade war."In a separate report Thursday, the Labor
Department said that 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. Economists believe this weekly
indicator will be one of the first signs if the economy is starting to
falter.
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