By Jeff Kearns
Inflation-adjusted gross domestic product grew at a 2% annualized rate, according to Commerce Department data Thursday that matched analyst estimates and compared with an initially reported 2.1%. Consumer spending, which makes up about two-thirds of the economy, grew 4.7%, topping all forecasts with the biggest gain since 2014.
The downward revision to GDP reflected lower estimates for exports, inventories, residential investment and state and local government spending.
The report signals Trump’s 3% annual growth goal may be even more out of reach as the world’s largest economy faces complications from his tariffs on Chinese goods, which may further weigh on the outlook with levies set to increase Sept. 1. Investors have sent bond yields plummeting while economists project weaker growth in the second half and have boosted odds that the record-long expansion will end in the next 12 months.
The economic environment has become even less predictable since June. After the Federal Reserve cut interest rates July 31 for the first time in a decade, Chairman Jerome Powell noted at the Jackson Hole symposium Friday that the following weeks “have been eventful” with Trump’s latest tariff threats and further evidence of a global slowdown.
The latest signs of weakness may add to calls for policy makers to make another reduction at their next meeting in September.
After a 3.1% pace in the first quarter, economists forecast third- and fourth-quarter growth under 2%. What’s more, revisions from July showed GDP grew 2.5% on a fourth-quarter-over-fourth-quarter basis last year, down from a prior estimate of 3%.
Thursday’s report underscored the extent to which consumers can help sustain an expansion that’s wobbling elsewhere. The composition of the revision showed that personal consumption expenditures, the biggest driver of growth in the period, contributed 3.1 percentage points to GDP growth after an initially reported 2.85 points.
Net exports subtracted 0.72 point, more than the initial drag of 0.65 point, while nonresidential fixed investment remained a slight drag.
That may point to the impact of Trump’s tariffs as companies delay investment and potentially begin passing higher costs along to consumers.
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. This measure, often looked to by economists as a gauge of underlying demand, suggests growth in the quarter was stronger than the headline number indicated.
Housing contracted for a sixth-straight quarter with an even bigger drag. Residential investment shrank at a 2.9% pace that was initially reported as a 1.5% drop.
The report also gave the first read on business earnings in the quarter. Pretax corporate profits climbed 5.3% from the prior quarter, the most in five years, and 2.7% annually.
A separate report from the Labor Department Thursday showed filings for unemployment benefits held steady. Jobless claims rose by 4,000 to 215,000 in the week ended Aug. 24, about in line with forecasts and the four-week moving average.
The labor market has remained a bright spot for the economy, with unemployment near a half-century low and wage gains holding up. Next week’s jobs report is projected to show payroll gains of around 160,000 in August, roughly in line with the prior reading but below last year’s 223,000 average.
- Gross domestic income, adjusted for inflation, rose 2.1%, following 3.2% in the first quarter.
- Inflation remained subdued, as the personal consumption expenditures price index, excluding food and energy, rose at a 1.7% pace that was revised from 1.8%.
- Government spending contributed 0.77 point after a previously reported 0.85 point.
- Travel was the largest contributor to the downward revision to exports of services, which fell 6.3%.
- The GDP report is the second of three estimates for the quarter; the third is due Sept. 26.