Published: Sat, July 27, 2019
Markets | By Otis Pena

The U.S. Economy Is Slowing As Trade War Takes A Toll

The U.S. Economy Is Slowing As Trade War Takes A Toll

The full report from the Commerce Department is online here. But it was not good news for businesses because fixed investment slipped 0.8%, investment dropped 11%, spending on equipment edged up just 1%, and outlays fell 1.5%. Fed Chairman Jerome Powell early this month flagged business investment and housing as areas of weakness in the economy.

The United States' conomic growth slowed in the second quarter as consumer spending rose, though weaker business investment and exports underscored the risks spurring the Federal Reserve toward an interest-rate cut.

The president has long claimed that his tax cuts, regulation-cutting and the renegotiation of long-established worldwide trade deals would lead to economic growth at or above 3 percent, something that many economists said could not be done. "If the pattern continues, it is not a good sign for the economy because there would be fewer jobs. For this reason, the Fed will cut rates next week".

CME Group's Fedwatch tool showed that the market is pricing in a 100 percent chance of a rate cut at the Fed's upcoming policy meeting on July 30-31, expecting an around 80 percent probability of a lowering of the benchmark interest rate by 25 basis points.

GDP grew by 1.1 percent in the first quarter of 2016 and the second-quarter GDP grew by 1.4 percent and finished the year with 3.5 percent and 2.1 percent growth in the third and fourth quarter.

Not only is he unlikely to hit that mark in 2019, but things appear to be slowing down as growth during the final three months of 2018 was listed at 1.1 percent - less than half the original estimate and the weakest quarterly output in three years. This increase is notably higher than the 2.5 percent pace set in the preceding four quarters. "Not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck".

Consumer sentiment is near historical highs and robust spending is backstopping growth.

A stronger dollar and yet more tariffs also are making it more hard and less profitable for other countries to do business with the United States. Unemployment stands at the lowest level in a half century and consumer confidence is at a 15-year high, helping Starbucks and McDonald's to report blowout quarterly US sales on Friday. Consumer spending grew at a 1.1% rate in the first quarter.

The question is whether they can sustain it now, as the U.S.

Trump threatens tariffs on French wine over tech tax — International Business
While most of the companies are American , companies based in Germany, China, the United Kingdom and even France will be impacted. France's new law would allow it to gather taxes from the activities undertaken by these companies in France.

Shoppers carry bags of purchased merchandise at the King of Prussia Mall in King of Prussia, Pennsylvania, U.S., December 8, 2018.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, surged at a 4.3% rate in the second quarter, the fastest since the fourth quarter of 2017. Second-quarter growth, which prompted Trump's mission accomplished declaration, was cut to a 3.5% pace from a 4.2% rate.

"There could be more noticeable effects on various growth components, with weakness in related equipment spending and exports and a partially offsetting increase in inventories", said Daniel Silver, an economist at JPMorgan in NY.

A widening trade deficit and less inventory accumulation may have knocked as much as 1.7 percentage point off the headline growth figure, ING Bank NV estimated before the July 26 data. Retail trade contributed 0.82 percentage points and mining, quarrying, and oil and gas extraction contributed 0.80 percentage points.

The acceleration in consumer spending also helped businesses to whittle down an inventory overhang, leading to a smaller inventory build-up.

GDP grew in all 50 states and Washington, D.C., in the first quarter. Inventories added 0.53 percentage point to GDP growth in the first quarter. Those import taxes have raised costs for many companies, and it's unclear how long the additional tariffs will remain in place. Gross private domestic investment fell at a 4.5% rate, compared with growth of 6.2% in the previous quarter.

The tax cut for businesses was supposed to spur companies to invest in new properties, equipment and products, but after a bounce early previous year, businesses have pulled back on spending.

Going forward, consumer spending will likely still be solid, though growth probably won't be as fast as it was in the second quarter.

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