US second-quarter GDP growth revised to 2%

WASHINGTON (Reuters): The US economy slowed a bit more than initially thought in the second quarter as the strongest growth in consumer spending in 4-1/2 years was offset by declining exports and a smaller inventory build.

Gross domestic product increased at a 2% annualised rate, the Commerce Department said in its second reading of second-quarter GDP on Thursday. That was revised down from the 2.1% pace estimated last month. The economy grew at a 3.1% rate in the January-March quarter. It expanded 2.6% in the first half of the year.

The downward revision was in line with economists’ expectations.

The economic expansion, now in its 11th year, is under threat from the Trump administration’s year-long trade war with China, which has undercut business investment and manufacturing.

The deterioration in trade relations between the two economic giants has roiled global stock markets and triggered an inversion of the US Treasury yield curve, fanning fears of a recession. While manufacturing and housing data suggest the economy continued to slow early in the third quarter, strong consumer spending, backed by the lowest unemployment rate in nearly 50 years, has tempered some concerns about a downturn.

Federal Reserve Chair Jerome Powell told a conference of central bankers last week that the economy was in a “favourable place,” but reiterated that the US Central Bank would “act as appropriate” to keep the economic expansion on track. The Fed lowered its short-term interest rate by 25 basis points last month for the first time since 2008, citing trade tensions and slowing global growth. Financial markets have fully priced in another quarter-percentage-point cut at the Fed’s 17-18 September policy meeting.

The economy is also losing speed as the stimulus from the White House’s $1.5 trillion tax-cut package and a government spending blitz fades. Economists are forecasting growth this year around 2.5%, below the Trump administration’s 3% target.

When measured from the income side, the economy grew at a 2.1% rate in the second quarter. Gross domestic income (GDI) increased at a 3.2% pace in the January-March quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, rose at a 2.1% rate last quarter, slowing from a 3.2% pace of growth in the first three months of the year.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, surged at a 4.7% rate in the second quarter. That was the fastest since the fourth quarter of 2014 and was a slight upward revision from the 4.3% pace estimated last month. The GDP report showed the trade deficit widened to $982.5 billion in the second quarter, instead of $978.7 billion as reported last month. Trade cut 0.72 percentage point from GDP growth last quarter instead of 0.65 percentage point as previously reported.