Economic Growth Slowed to 2.1% in Second Quarter

The container ship Kota Ekspres is unloaded at the Port of Oakland in Oakland, Calif., on July 22, 2019. (AP Photo/Ben Margot)

(CN) – The American economy slowed considerably from April to June, but still beat expectations as the Federal Reserve looks ready to slash interest rates next week.

The growth in the gross domestic product, a primary indicator of economic health, dropped to 2.1% from 3.1% in the first quarter.

A surge in the growth of consumer spending – a 4.3% annual rate compared to 1.1% in the January-March quarter – was offset by a growing trade deficit and slower inventory restocking, according to a Commerce Department report released Friday.

Many experts had predicted GDP growth would slow to 2% or lower in the April-June quarter. Economists expect yearly growth of about 2.5% in 2019, down from 2.9% last year.

President Donald Trump’s administration has been projecting annual GDP growth of about 3%, which would be well above the 2.2% average annual rate seen during the current economic expansion. The economy marked 10 consecutive years of growth this month, the longest streak on record.

But the ongoing trade war with China has deepened concerns about an economic slowdown in the U.S. and in global markets. Business capital investment dropped at a 0.6% annual rate in the second quarter, the first time it has declined in three years. It’s likely a sign that businesses are hesitant to start new projects because of the uncertainty surrounding the trade war.

The projected slowdown through the rest of the year is driving expectations that the Federal Reserve will cut short-term interest rates at its July 30 meeting. Inflation has stayed below the central bank’s 2% annual target.

Josh Bivens, research director at the Economic Policy Institute, said in a statement Friday that the GDP report “provides more ammunition for those arguing that the Fed should cut interest rates at its next meeting.”

“A growth slowdown is clearly happening,” he said. “Cutting rates next week would signal the Fed is getting truly serious about defending that [2%] target against disinflation.”

The Commerce Department on Friday also lowered its estimate for last year’s economic growth from 3% to 2.5%.

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