U.S. Economy Slows: Trump's 3% Growth Pledge Now In Rearview Mirror

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U.S. Economy Slows: Trump's 3% Growth Pledge Now In Rearview Mirror

History suggests American consumers could do it again.

Growth in the USA economy slowed during the second quarter, as accelerating consumer spending could not offset a reversal in the inventory cycle and weaker business investment.

It's a replay of 2015 and 2016, when an oil-led slowdown in manufacturing put shoppers in the same spotlight.

With a strong labor market supporting consumer spending, a recession is, however, not on the horizon.

U.S. GDP picked up pace since 2013 and increased the pace in 2014. That could be the result of hesitance by companies to commit to projects because of the uncertainty associated with the trade war between the USA and China, the world's two largest economies.

The grounding of Boeing Co.'s 737 Max jet for safety reasons also is denting the economy, with the company's plane orders slowing to a trickle. Most analysts expect the USA central bank to cut the benchmark federal funds rate by 25 basis points at its July 31st meeting, lowering the rate to a range between 2.00 percent and 2.25 percent.

A key measure of inflation, the core personal consumer expenditures price index, which excludes spending on food and energy, rose at an annualized rate of 1.8%.

But the decline was less than expected - thanks to a consumer spending spree - and the report showed signs that there is continuing momentum in the US's decade-long economic expansion, albeit at a slowing pace. "The onus is on the consumer to keep things going at this point".

For the first quarter of 2019, real GDP is estimated to have increased 3.1 percent (table 1), the same as previously published.

Economists polled by Reuters had forecast GDP increasing at a 1.8 percent rate in the second quarter.

Gross private domestic investment contracted 5.5% from a 6.2% jump earlier in the year as nonresidential fixed investment slowed 0.6% from a 4.4% rise in the first quarter.

West Virginia's GDP grew 5.2 percent, the BEA said, more than any other state. Starbucks Corp. on Thursday said USA comparable-store sales soared from a year earlier. Corporate profits had dropped for the first time in seven years, while consumption kept humming at a solid pace. If Friday's Q2 US GDP data comes in better than expected, the probability of a 0.5% cut to Fed's policy interest rate could be priced out by markets which poses an upside risk to the US Dollar. "It's positive from the framework of, we may see a prolonged expansion cycle continue". The gross domestic product cooled down in the April-to-June period, but there were some bright spots in the overall report, including a surge in consumer spending.

The figure is a marked slowdown in the 3.1% growth that the U.S. achieved in the first three months of the year and comes as other major economies have warned that their growth is slowing too.

The American economy hit the brakes in the second quarter, as activity declined in an increasingly skittish industrial sector and exports fell, but the U.S. continues to outperform other advanced economies, according to government data released Friday. But the data will provide more detail on the state of the US economy to help frame the central bank's thinking on whether to follow up with additional easing this year, as investors are predicting.

-With assistance from Kristy Scheuble, Sophie Caronello, Ryan Haar and Vince Golle.

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