Daily Management Review

US Economic Growth Slows In Q2 With Concerns Over Drop In Business Investment


US Economic Growth Slows In Q2 With Concerns Over Drop In Business Investment
The loss of steam in the United States economy for the second quarter was now as bad as was being expected because of an increase in consumer spending which offset some of the negative impacts of reducing exports and a smaller inventory build. The performance of the economy in the second quarter apparently will dispel fears and concerns about its health.
There were however some red flags for the 10-year-old economic expansion for analysts and experts in the otherwise upbeat report issued by the US Commerce Department. There was a contraction for the first time in three years in business investment coupled with a decline in the housing sector for the straight sixth quarter.
Those two sectors were identified earlier this month to be causes of concerns for the economy by the Federal Reserve Chairman Jerome Powell. The sectors could also be used by the Fed as an additional justification for a rate cut next Wednesday, which would be the first in a decade, along with concerns about the health of the economy because of the acrimonious trade war with China and an overall slowdown in global growth.
“The key to future economic growth is business spending. Evidently, businesses do not share the ebullience consumers have,” said Sung Won Sohn, an economics professor at Loyola Marymount University in Los Angeles. “This is not a good sign for the economy because there would be fewer jobs for consumers. For this reason, the Fed will cut rates next week.”
It is widely anticipated that there would be a reduction in Fed’s benchmark rate by a quarter point when the chairs meet next week.
In the second quarter, there was an increase of 2.1 per cent at an annualized rate in US gross domestic product increased which was lower than the first quarter at an unrevised rate of 3.1 per cent. According to many surveys of economists, the average expectation of growth of the economy was 1.8 per cent for the second quarter. The economists also expected that the long term growth rate of the economy without igniting inflation to be between 1.7 per cent and 2.0 per cent.
While playing down the slowdown in the economy, the administration of president Donald  Trump put the blame on the Feed for the slow growth rate, even as the Trump administration has attempted to provide a boost to the economy by implementing huge tax cuts, increased government spending and deregulation.
“Not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck,” Trump wrote on Twitter. “Almost no inflation. USA is set to Zoom!”
The year on year growth figure has been highlighted by Trump as evidence of the effectiveness of his policies even though it is known that the president is fond of touting the US economic condition to be one of his biggest successes.
There was no long term impact of the massive fiscal stimulus, which included a $1.5 trillion tax cut package, but resulted in increase in debt for the country, say economists who have earlier focused 2019 growth to be at around 2.5 per cent.