US growth revised down slightly in Q2 amid weak business investment

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Updated: August 30, 2019 11:33:23 AM

GDP expanded 2.0 per cent in the April-June period, down a notch from the initial 2.1 per cent growth estimate reported last month, and well below President Donald Trump's three per cent target, according to the Commerce Department.

US growth, Q2, business investment, economy news, GDP, GDP growth, US economy, Donald TrumpRecession indicators in recent weeks have begun to flash warning signs, and though the American economy is still outpacing the rest of the industrialised world, it has begun to sputter worryingly in some areas.

The world’s largest economy grew a little more slowly in the second quarter than previously thought, with new official data released Thursday showing weaker oil exports and local government spending. The confirmed slowdown underscored the challenges facing President Donald Trump, who is touting his economic policies as he seeks reelection while prosecuting a grinding trade war with China.

GDP expanded 2.0 per cent in the April-June period, down a notch from the initial 2.1 per cent growth estimate reported last month, and well below President Donald Trump’s three per cent target, according to the Commerce Department.

Recession indicators in recent weeks have begun to flash warning signs, and though the American economy is still outpacing the rest of the industrialised world, it has begun to sputter worryingly in some areas.

Consumer spending remains robust and corporate profits rose in the second quarter, after falling at the start of the year, but business investment stalled out, according to the report. And the China trade war could darken the picture in the third quarter as several companies warned in their earnings reports Thursday that Trump’s latest round of China tariffs were a threat to profits.

Clothing retailer Abercrombie & Fitch said two coming waves of tariffs should wipe out about $6 million in profit in the fall shopping season. RDQ Economics said the latest GDP numbers were “the proverbial mixed bag.”

“The domestic economy appears to be fairly strong but the mix of growth between consumer and investment spending is not healthy from a supply-side perspective with investment spending stalled out,” the firm said.

While largely confirming economists’ expectations, the revised second quarter GDP numbers nevertheless marked a sharp slowdown from the heady pace of growth at the start of the year.

Unemployment remains low but hiring has slowed in 2019 and business investment has dropped sharply while the manufacturing sector already is in recession. Investors have become increasingly worried a recession in the rest of the world and the Brexit turmoil will spill over into the US economy, already stressed by Trump’s trade conflict with China. But a solid bump in consumer spending — on health care and retail goods — provided a dose of good news and offset the weaker areas and confirmed the growing divide between consumers and businesses.

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While investment in structures was its weakest in more than three years, private consumption of non-durable goods was the strongest since 2003. Companies have sharply curtailed investment in new factories as the China trade war has shaken their confidence, disrupting supply chains and raising prices. Tourism and travel was another sore spot, as falling revenues from foreign visitors helped shave a half percentage point off growth in services exports, hitting hotels, restaurants and tourist attractions.

Trump has by turns denied that the US economy is weakening or sought to blame the Federal Reserve for failing to cut interest rates fast enough. A real estate magnate, he campaigned on his ability to bring an outsider’s flair to reigniting job creation and investment. So signs growth is faltering could jeopardise his chance of winning a second term in next year’s elections.

A Quinnipiac University poll released Wednesday found registered voters now disapprove of Trump’s handling of the economy by a slim margin. And economists worry that, with interest rates already very low, the Fed may have little room to maneuver should a recession arrive, while a divided Congress and soaring deficits may make enacting fresh fiscal stimulus unlikely at best.

Oxford Economics said recent tariff increases announced by Trump could cost the US economy about 0.5 percentage points in GDP growth next year — something the International Monetary Fund also warned was a risk of continuing the trade war.

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