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GDP grew at 2.2% annual rate in the second quarter

GDP grew at 2.2% annual rate in the second quarter


GDP grew at 2.2% annual rate in the second quarter

The U.S. economy grew more slowly in the second quarter as a pullback in business stockpiling and exports offset strong spending by consumers.

The results portrayed solid activity even as recession concerns continue to hover.

The nation’s gross domestic product – the value of all goods and services produced in the U.S. — increased at a seasonally adjusted annual rate of 2.1% in the April-June period, following a 3.1% gain in the first quarter, the Commerce Department said Friday. Economists expected a 1.8% increase in output.

The report comes amid mounting worries that the sluggish global economy and President Trump’s trade war with China could lead to a recession by next year. Those fears have bolstered expectations that the Federal Reserve will cut interest rates next week for the first time in a decade to head off a potential downturn.

The latest snapshot of economic activity has been eagerly awaited because first-quarter growth was strong but inflated by business stockpiling and exports, both of which are volatile. Consumer spending, the economy’s chief engine, sputtered early this year and a second straight feeble showing would have stoked recession fears.

More broadly, the record 10-year-old economic expansion has continued to chug along. The economy grew 2.9% last year, matching a postrecession high. But the Trump-led federal tax cuts and spending increases that juiced growth are set to fade by the second half of 2019. And the trade fight is projected to take a bigger toll on exports, as well as on business confidence and investment.

Many analysts expect growth to slow to about 2% in the second half of the year, in line with the tepid average during the expansion and below the 3% or more that Trump has promised. Most economists surveyed by the National Association of Business Economics are forecasting a recession by late next year.

Consumer spending surges

Consumer spending grew 4.3% in the first quarter, well above the paltry 1.1% pace early in the year. Average monthly job growth has slowed to 171,000 from 223,000 in 2018 as the federal stimulus has faded and the low 3.7% unemployment rate has made it harder to find qualified workers. But that’s still a solid increase that, along with average annual wage growth of about 3%, has left more discretionary income in the pockets of Americans.

Business stockpiling slows sharply

Companies replenished inventories at a far slower rate, reducing growth by 0.86 percentage points. In the first quarter, firms aggressively built up stockpiles ahead of an anticipated hike tariffs on Chinese imports, adding to growth. As a result, there was little need to add to those reserves in the second quarter.

Business investment drops

Business investment fell 0.6% — the first drop in three years — following a 4.6% increase in the first quarter as spending on structures tumbled 10.6%.  Business spending on new equipment, software and buildings has slowed markedly from the robust pace in early 2018, when tax incentives may have encouraged more projects. More recently, uncertainty over the trade war has dented confidence, surveys show, and likely dampened investment.

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