Economic Growth in Second Quarter Revised Down to 2%

Marco Green
August 30, 2019

While the economy is slowing, it appears not to be rapidly losing altitude. Businesses stepped up inventory accumulation last month, likely in anticipation that demand would remain strong.

Despite the resilience consumers are showing, the overall economic picture is weakening. The recovery became the longest in USA history last month but analysts have begun to worry whether trade wars, plunging stock markets and such factors as an inverted yield curve might be signaling growing risks of a recession.

"The economy is still on cruise control and growing at a slow but steady pace that looks sustainable as the trade wind skies continue to darken", said Chris Rupkey, chief economist at MUFG in NY.

Within industrial production, which until now had been one of the weakest parts of the economy, manufacturing activity grew by 2.0 percent on the quarter and construction rose 1.9 percent, IBGE said.

Last month the central bank slashed interest rates to a record low and President Jair Bolsonaro's government, which has promised to revive the economy, unveiled an $11.2 billion stimulus plan.

The small downgrade was in line with economists' expectations.

The economy grew at a 3.1 per cent rate in the January-March quarter.

US Dollar Index clings to daily gains near 98.30.

The U.S. economy expanded by slightly less in the second quarter of 2019 than originally estimated, according to data released by the Commerce Department on Thursday. Gross domestic income (GDI) increased at a 3.2% pace in the January-March quarter.

Trump contends that his economic program of tax cuts, deregulation and get-tough trade policies will produce sustained GDP growth of 3% a year or better, a big improvement on the 2.3% gains of the Obama years.

The income side of the growth ledger was supported by a rebound in profits after two straight quarterly declines. Many economists expect this trend to continue, dragging growth further down for the rest of the year. At the same time, business investment, which has weakened in the face of President Donald Trump's trade wars, was revised lower and subtracted from growth in the April-June period.

That is expected to keep the Fed on track to cut interest rates by another quarter-percentage-point cut next month. Agricultural output shrank by 0.4 percent, however.

The department also reported retail inventories jumped 0.8 per cent in July after falling 0.3 per cent in the prior month. "Imports which are a subtraction in the calculation of GDP, were unrevised".

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, surged at a 4.7 per cent rate in the second quarter.

"As a result, we expect GDP growth to slow further in the third quarter, as relatively firm USA consumer spending fails to compensate for the weaker business outlook and slowing investment". That was the fastest since the fourth quarter of 2014 and was a slight upward revision from the 4.3 per cent pace estimated last month. That drop was offset by the increase in consumer spending to a rate of 4.7%, up from an initial estimate of 4.3%.

In a separate report Thursday, the Labor Department said the number of Americans filing claims for unemployment benefits, seen as a good proxy for layoffs, rose by 4,000 last week to a still-low 215,000. Trade cut 0.72 percentage point from GDP growth last quarter instead of 0.65 percentage point as previously reported.

BEA's second estimate of Q2 GDP growth ticks down to 2%. Inventories chopped 0.91 percentage point from GDP growth last quarter, instead of 0.86 percentage point as reported in July.

Declining business investment was the main driver for the slowdown, while robust consumer spending added to growth.

Other reports by Click Lancashire

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