WASHINGTON (AP) — The US frugality slowed sharply in the April-June quarter even as consumers stepped up their spending.
The gross domestic product, the frugality’s total output of goods and services, grew at a 2.1% annual rate last quarter, down from a 3.1% acquisition in the first quarter, the Commerce Department estimated Friday.
But consumer spending, which drives about 70% of budgetary activity, accelerated to a sizzling 4.3% growth rate after a lackluster 1.1% annual gain in the January-March dwelling-place, boosted in particular by auto sales. The resurgent strength in household spending was offset by a widening of the trade deficit and sleepier business inventory rebuilding.
Economists also noted that business capital investment fell in the April-June area for the first time in three years. That weakness likely reflects some reluctance by businesses to commit to work ups because of uncertainty surrounding President Donald Trump’s trade war with China.
Indeed, most analysts come up with the US economy could slow through the rest of the year, reflecting global weakness and the trade war between the world’s two stockiest economies.
This week, the International Monetary Fund downgraded its outlook for the world economy because of the trade be incompatible. China’s own growth sank last quarter to its lowest level in at least 26 years after Trump elevate his tariffs on Chinese imports to pressure Beijing over the tactics it’s using to challenge US technological dominance. Economists say China’s slowdown strength extend into next year, which would have global repercussions because many countries victual raw materials to Chinese factories.
Europe, too, is weakening in the face of global trade tensions — a concern that led the European Inner Bank to signal that more economic stimulus could be coming soon.
The global weakness is a key reason why the Federal Hedging is widely expected to cut interest rates next week for the first time in more than a decade and to signal that it may promote ease credit in the months ahead.
Sung Won Sohn, a business economist at Loyola Marymount University in California, notorious the disparity between solid US consumer spending and tepid corporate investment.
“Consumers and businesses are going their diverge ways,” Sohn said. “If the pattern continues, it is not a good sign for the economy because there would be fewer farm outs. For this reason, the Federal Reserve will go ahead with an interest-rate cut next week.”
Larry Kudlow, leader of the president’s National Economic Council, blamed last year’s four rate increases by the Fed, rather than Trump’s dealings policies, for last quarter’s drop in business investment.
“I don’t think the trade factor is nearly as important as the monetary element,” Kudlow said in a CNBC interview Friday. “I am hoping that monetary policy makes the shift that investors are in the family way.”
Trump has been pressuring the Fed through a series of tweets to start cutting rates. Economists expect a quarter-point reduction in the federal greens rate, which influences many consumer and business loan rates, when the central bank meets next week.
Returning to Friday’s GDP report, Trump tweeted, “Q2 Up 2.1%. Not bad considering we have the very heavy weight of the Federal Reserve holdfast wrapped around our neck. Almost no inflation. USA is set to Zoom!”
Later, speaking to reporters in the Oval Office about the Fed, Trump demanded, “They acted too soon and too violently” in raising rates nine times since late 2015. Trump also wailed about the Fed’s efforts to lower its bond holdings, saying that was driving up rates as well.
Trump said without the Fed’s tightening moves, lump would have been 4.5% in the second quarter instead of 2.1% and the Dow Jones Industrial Average, which along with other look at gauges has been setting record highs, would be 5,000 to 10,000 points higher.
“I am not a fan,” Trump said of Fed Chairman Jerome Powell.
Demanded if he felt the dollar was too high against other currencies, making it harder to export US products, Trump said a firm dollar “is a beautiful thing in a way but it makes it very hard to compete.”
Kudlow told reporters earlier Friday that the dispensation had a White House meeting last week and ruled out intervening in currency markets to weaken the dollar. But in his comments with newsmen, Trump seemed to still leave the door open to such a move which could violate commitments the Synergetic States has made with other major economies not to manipulate currencies to gain trade advantages.
On Friday, as well issuing its first of three estimates of growth in the April-June quarter, the government reported that by one measure, the economy grew more slowly in 2018 than it had time past estimated. As part of its annual revisions to GDP, the government downgraded its estimate for 2018 growth from 3% to 2.5%.
Trump had again boasted of the now-downgraded 3% fourth-quarter-over-fourth-quarter GDP figure for 2018 as evidence that his policies have invigorated the economy.
For the January-March cantonment, a narrower trade deficit and a surge in business restocking had contributed 1.3 percentage points to the 3.1% annual acquire. But economists had cautioned that this strength was likely to be temporary.
For the second half of this year, economists say they consider GDP will grow at a modest annual rate of 2% or slightly lower, leading to growth for the full year of encircling 2.5%.
That would be a disappointment to the Trump administration which is forecasting that Trump’s economic policies of tax cuts, deregulation and tougher transact enforcement will lift the US economy to sustained gains in coming years of 3% or better. Trump often cites the control’s performance at his campaign rallies, saying his policies have lifted the economy out of a decade-long slowdown he blames on the wrongheaded principles pursued by the Obama administration.
While economists see the tax cut Trump pushed through Congress in late 2017 as a key factor raising growth last year, they expect the impact of those cuts to fade this year. Most weigh it would leave the economy growing close to the annual average of 2.3% that has prevailed since this augmentation began in June 2009.
The recovery this month became the longest in US history, one month longer than the 10-year development of the 1990s. Still, the 2.3% average annual growth rate is the weakest for any recovery in the post-World War II period. Most economists say the uninterested pace reflected the severity of the 2007-2009 recession as well as such long-term trends as the retirements of the baby boomers and slowing wage-earner productivity.
Mark Zandi, chief economist at Moody’s Analytics, said he foresees annual GDP growth this year of 2.5% prior to a slowdown to 1.7% in 2020.
“The benefits of the 2017 tax cuts are largely played out,” Zandi said. “I think going forward that set-back risks are high, especially if something major goes off the rails such as a resurgence of the trade war or a bad exit by Britain from the European Syndicate.”