U.S. Economy Grew at 2.1% Rate in 2nd Quarter, G.D.P. Report Says

Economic growth slowed last spring, but don’t panic: The decade-long expansion has lost some momentum, but there’s little reason to think it is about to stall out.

Gross domestic product, the broadest measure of goods and services produced in the economy, rose at a 2.1 percent annual rate in the second quarter, according to preliminary data released by the Commerce Department on Friday. That represents a significant deceleration from the 3.1 percent growth rate in the first quarter.

But the big swings in the quarterly data are almost certainly exaggerated. The larger trend shows that the economy has cooled since last year, when tax cuts and government spending gave growth a temporary jolt. But the strong job market and robust consumer spending are keeping the recovery on track, even as trade tensions and a slowing global economy are threatening to knock it off course.

“It’s a good economy, but it’s got fragilities in it,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “You’d expect to feel more euphoria and more underlying strength, and instead what we’re seeing is fault lines.”

Growth in the first quarter looked good on the surface, but the underlying details were much weaker. The pattern reversed in the second quarter. Final demand — a measure of underlying growth that strips out some of the most volatile components — actually accelerated.

The biggest factor: consumer spending, which accounts for more than two-thirds of the American economy. Stock market volatility, a prolonged government shutdown and harsh winter weather all contributed to weak spending early in the year. But consumer spending roared back in the spring, rising at a 4.3 percent rate. Government spending, which picked up in the second quarter after being depressed by the shutdown, also helped lift growth.

Unfortunately, other parts of the economy look much weaker. Business investment declined and exports slumped as manufacturers, in particular, were battered by tariffs and slowing demand from overseas. If that continues, it could slow hiring or even lead to layoffs, which would hurt consumer spending as well.

“There’s nothing that I can point to about the consumer and say I’m worried,” said Ellen Zentner, chief United States economist for Morgan Stanley. “But how long can business investment remain this sluggish without spilling over into jobs and the consumer?”

The housing market continued its recent struggle. Residential fixed investment, which includes housing construction, declined for the sixth consecutive quarter.

Last year was one of the best years of the recovery — but it wasn’t as good as it appeared initially.

The Commerce Department on Friday revised G.D.P. data back to 2014, an annual process that incorporates data not available when earlier estimates were released. One big change in the data: growth in the middle of 2018 was not quite as strong as it seemed at first.

The change robbed President Trump of a favorite talking point: Before the revisions, growth last year was 3 percent by one of two commonly used measures. (It fell just short by the other.) Now, by the White House’s preferred method, G.D.P. grew just 2.5 percent last year.

Mr. Trump’s 3 percent target matters for politics, not economics. But the slower growth last year does have real-world implications. It suggests that the economy came into this year in weaker shape than previously believed, and it could help explain why business investment has lagged.

“That’s half a percentage point less momentum in the economy than we thought before,” said Ben Herzon, an economist for Macroeconomic Advisers, a forecasting firm. “We had been expecting Q2 to be the beginning of the downshift, but it looks like it started before.”

Friday’s report is one of the last major pieces of economic data to arrive before next week’s Federal Reserve Board meeting, when policymakers are widely expected to cut interest rates in an effort to stimulate the economy.

The report is unlikely to change the Fed’s mind. But it could affect how policymakers think about the need for further cuts later this year — something investors have been anticipating but that Fed officials have yet to commit to.

On Friday morning, Mr. Trump renewed his criticism of Fed policy, which he called an “anchor wrapped around our neck” in a post on Twitter.

Sahred From Source link Business

Leave a Reply

Your email address will not be published. Required fields are marked *