Revised GDP Confirms Slowing Economy

Manhattan midtown is seen shrouded in fog in New York City the United States Dec. 14 2015

Inflation-adjusted gross domestic product grew at a 2 percent annualized rate, according to Commerce Department data Thursday that matched analyst estimates and compared with an initially reported 2.1 percent.

The slowdown in inventory accumulation reflects robust consumer spending and an uncertain economic outlook.

For all of 2019, economists estimate that GDP will slow to around 2.2 percent and then drop to below 2% in 2020 as the economy faces headwinds from the global slowdown and the uncertainties from Trump's escalating trade war with China.

Mark Zandi, chief economist at Moody's Analytics, said he is not forecasting a recession in the next 18 months but he said one can't be ruled out with the greatest risk coming from Trump's trade war with China.

But an inverted yield curve (meaning that short-term interest rates for financial products are higher than long-term interest rates for such products) is, according to many economists, a sign of an economic slowdown - and data released by the Commerce Department on Thursday shows that growth for the USA during 2019's second quarter was 0.1% less than originally thought.

The numbers confirmed the growing divide between consumers and big business, which have sharply curtailed investment in new factories as the China trade war has shaken their confidence, disrupting supply chains and raising prices. The recovery became the longest in US history last month but analysts have begun to worry whether trade wars, plunging stock markets and such factors as sluggish factory output and a tepid housing market might be signaling growing risks of a recession. The estimate is a tick lower than the government's initial estimate a month ago of 2.1% annual growth.

Excluding the trade and inventory components of GDP, which remained the main drags on the second quarter after giving a big boost in the first, final sales to domestic purchasers increased at an upwardly revised 3.6% pace.

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Federal Reserve Chair Jerome Powell told a conference of central bankers last week that the economy was in a "favorable place", but reiterated that the USA central bank would "act as appropriate" to keep the economic expansion on track. The Fed did cut rates by a quarter-point last month, the first rate reduction in a decade, and is expected to do so again at least twice more this year.

Last month, the Fed lowered its interest rate by 25 base points. Many economists expect this trend to continue, dragging growth further down for the rest of the year.

Business investment declined at an unrevised 0.6% rate in the second quarter, the first contraction since the first quarter of 2016.

Trump is counting on rising wages and low unemployment to keep consumers spending.

The underlying details of the report further revealed that the Personal Consumption Expenditures in the second quarter stayed unchanged at 2.3% but the core version ticked down to 1.7% from 1.8%. A report from the Labor Department on Thursday showed the number of Americans filing for state unemployment benefits increased slightly last week.

Tourism and travel was another sore spot, as falling revenues from foreign visitors helped shave a half percentage point off growth in exports of services, hitting hotels, restaurants and tourist attractions.

The president has pledged to achieve annual growth at annual rates of 3% or better.

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