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U.S. economy grows at 2.1%, cooling off from first quarter

Fed chair Jay Powell on wages and more
  • GDP in the second quarter of 2019 grew at a rate of 2.1% -- a dip from its 3.1% rate in the first quarter.
  • Economists had predicted growth to slow to an annualized 2%.
  • A slowdown in economic growth raises the likelihood the Federal Reserve could cut rates in the near-term, analysts say.

The U.S. economy grew at a rate of 2.1% in the second quarter, slightly higher than forecasts for growth of 2%. The Department of Commerce's initial estimate of gross domestic product -- the total value of goods and services produced in the U.S. -- may reinforce concerns that economic activity is slowing amid a trade war and other global economic headwinds.

Economic growth was buoyed by personal spending and government spending, both on the federal and state and local levels, the Commerce Department said. That helped offset declines in exports and private inventory investment, it noted.

The step-down in economic activity reflects "slower growth in business investment and exports, and relatively modest growth in consumer spending," said Cailin Birch, global economist at the Economist Intelligence Unit, in an email before the data was released. "The factors that contributed to a surge in first-quarter growth -- namely, a contraction in imports and rising unsold inventories -- reflect concerns over future trade policy and slowing demand."

Still, businesses may feel more sanguine in the third quarter because of apparent progress in trade talks between the U.S. and China, Birch added. "It now appears that damaging U.S. tariffs on the final round of Chinese goods have been avoided. However, this impact will not have been felt in the second quarter," she noted.

Despite economists' concerns, a majority of Americans remain upbeat about the economy, according to a new poll from the Pew Research Center. About 55% of those polled said they believe the country's economic conditions are excellent or good, which Pew said is one of the most positive assessments in two decades. 

Wage concerns

The Federal Reserve closely monitors GDP and other economic data to determine whether to apply the brakes by raising rates or add fuel by lowering them. Chairman Jerome Powell earlier this month expressed concern about wages, noting that businesses aren't responding to economic growth by lifting pay to the same degree as in earlier expansions. 

The latest GDP numbers may add to the argument for a rate cut at the Fed's next meeting, said Charles Seville, co-head of Americas Sovereigns at Fitch Ratings, in an email.

"Growth of 2.1% is better than expected, but highly reliant on a surge in household consumption," Seville noted. "Investment was weak, as was net trade, which could add to the case for rate cuts at next week's Fed meeting."

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