Consumer spending had the biggest increase in a year and a half but falling corporate investment offset those gains.
Gross domestic product grew at a 2.1% annual pace from the start of April to the end of June. GDP slowed from a 3.1% gain in the first three months of the year.
A loss of momentum among exporters and manufacturers, suggest the economy could expand more slowly in the second half of the year. The Federal Reserve is prepared to cut already low interest rates as soon as next week to give the economy a boost.
Consumer spending jumped 4.3% after a 1.1% gain in the first quarter. Households spent more on new cars and trucks, food and drinks and clothing. However, for corporations, the situation was reversed. Fixed investment fell 0.8% to mark the biggest drop in three and a half years.
Keep in mind that these corporations, more than 600 of them, all signed a letter demanding that President Trump abandon American workers and end the trade war with China. The President said no. Now, these corporations have curtailed spending as a result.
Investment dropped almost 11% on structures such as office buildings, manufacturing plants and drilling rigs. Spending on equipment rose less than 1%.
Outlays fell 1.5% on residential housing, as high prices have dented sales.
Consumers account for almost 70% of GDP. Buoyed by steadily rising incomes, more job security and the lowest unemployment rate in almost 50 years, they are spending enough to keep the U.S. economy growing at around 2% a year even without business investment.
Keep in mind that China’s GDP is 6.2%. China is growing at nearly 300% the pace of the U.S. with the current trade war. Now we see why China is unwilling to work a trade deal that is fair with the U.S. (zero net trade balance where neither country has a trade deficit with the other). Even though the Chinese economy has slowed, I does not look like the U.S. is winning the trade war with China if you look at GDP. Instead, China appears to be telling U.S. corporations that if they wish to continue doing business in China, they will oppose the President and cut back on business investment inside the U.S.