GDP slows to 2.1% in second-quarter but beats expectations thanks to strong consumer - CNBC

A man using an angle grinder on a steel piece at a metal fabrication company on August 7, 2018 in Orange County, New York.

Waring Abbott | Michael Ochs Archives | Getty Images

Growth decelerated in the second quarter, but not by as much as Wall Street thought, as tariffs and a global slowdown weighed on the U.S. economy, the Commerce Department reported Friday.

GDP increased 2.1%, down from 3.1% from the first quarter, the weakest increase since the first quarter of 2017 as President Donald Trump took office. Dow Jones estimates were for 2% growth.

However, the underlying numbers in the report seemed to take steam out of the recession fears that have been much of the talk among economists and policymakers at the Federal Reserve.

"The recession talk was always overstated," chief investment strategist at State Street Global Advisors. "Those that were doing the Chicken Little, the sky is falling, we're headed for recession talk were clearly early in that assessment. The economic data continue to suggest that the economy isn't near recession, at least in the next year or so."

Consumer and business spending helped propel GDP in the April-to-June period, while a pullback in business investment weighed on the number. Personal consumption expenditures rose 4.5%, the best performance in four and a half years. At the same time, gross private domestic investment tumbled 5.5%, the worst since Q4 in 2015 as spending on structures slumped 10.6%.

Worries over the back-and-forth tariff battle between the U.S. and China has been a major driver of business sentiment, with executives expressing concern, both in surveys and 

The report comes amid growing concern that the weakening growth hitting much of the world's economy is spilling over into the U.S. While consumer activity has been strong, manufacturing growth has slumped recently and housing remains a weak spot.

Federal Reserve policymakers have been expressing concern about a potential slowdown and are expected to approve a quarter percentage point rate cut at their policy meeting next week. The Fed currently targets its benchmark funds rate in a range between 2.25% and 2.5%, but markets are pricing in a 100% chance of a cut and about a 56% probability of two more reductions before the end of the year, according to the CME.

While central bankers worry over rates, corporate profits have proven more resilient than expected, and analysts believe the economy, though slowing, remains strong enough to support earnings. Also, Goldman Sachs said in a report earlier this week that recent economic data is showing improvement, and the bank's strategists expect GDP to rebound to around 2% in the second half.

Get the market reaction here.

This is breaking news. Check back here for updates.

Let's block ads! (Why?)

https://www.cnbc.com/2019/07/26/us-gdp-second-quarter-2019.html

2019-07-26 12:30:58Z
CAIiEJfRXHt3XEE6r9My7WYHFMwqGQgEKhAIACoHCAow2Nb3CjDivdcCMJ_d7gU

Bagikan Berita Ini