The US economy is doing better than expected

The US economy is doing better than expected

Robust consumer spending helped businesses to whittle down an inventory overhang. The GDP report may be stronger than expected, but it's not weak enough nor strong enough to likely create any serious fear and panic for the markets on Friday ahead of next week's decision on interest rates by the Federal Reserve.

The only problem with that is the Fed will instantly come under attack from both the markets and Trump. "If we do get a recession next year it would be because we shot ourselves in the foot with the trade tensions".

The Bureau of Economic Analysis (BEA) released results for second quarter gross domestic product (GDP), showing that overall growth in the economy slowed to a 2.1 percent annualized pace.

In another indication of a slowing U.S. economy, the growth figure for 2018 was revised down from 3 percent, which the Commerce Department had previously reported, to 2.5 percent.

The economy is slowing largely as the stimulus from the White House's $1.5 trillion tax cut package fades.

President Donald Trump, whose administration has sought to boost the economy through a cocktail of massive tax cuts, government spending and deregulation, downplayed the slowdown in growth and blamed the Fed for the loss of momentum. The standard measure, which compares average growth in one year with average growth in the previous year, shows that the economy grew 2.9% in 2018, the same as before the revisions.


The head of the president's National Economic Council, Larry Kudlow, said last year's four rate increases by the Fed are to blame, instead of Trump's trade policies for the drop in business investment.

One factor that generated uncertainty for businesses in the second quarter was the global trade situation, as the US increased levies on Chinese goods and threatened, but didn't implement, tariffs on Mexican imports.

The downward revision stripped Trump of the banner 3.0 per cent number he had repeatedly hailed in public appearances and social media as the greatest economic performance in 14 years.

The U.S. economy slowed sharply in the April-June quarter even as consumers stepped up their spending.

Spending is being supported by the lowest unemployment rate in almost 50 years, which is lifting wages.

Despite the smaller trade deficit in June, trade was probably a drag on GDP growth in the second quarter. Still, that increase was offset by the reduction in business investment spending.


At the beginning of 2019, GDP growth was far above estimates at 3.2%.

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.

The current federal funds rate is set in a target range of 2.25 percent to 2.5 percent, but Powell signaled a loosening of monetary policy as he told lawmakers that concerns about the lack of momentum in global growth and uncertainties around trade tensions "continue to weigh on the United States economic outlook".

The plane was grounded worldwide in March after two fatal crashes in Ethiopia and Indonesia. Second-quarter growth, which prompted Trump's mission accomplished declaration, was cut to a 3.5% pace from a 4.2% rate.

Meanwhile, imports, which have been subtracted from the calculation of GDP, increased, the Commerce Department said.

Inventory investment increased at a $71.7 billion rate, slowing from the first quarter's $116.0 billion pace of increase.


Mining, which includes oil and gas production, increased 26.5 percent nationally, after increasing 38.0 percent in the fourth quarter.

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