Despite the strongest consumer spending in over four years, the economy is starting to slow down.
The economy is also losing speed as the stimulus from the White House's $1.5 trillion tax-cut package and a government spending blitz fades. In another report on Thursday, the Commerce Department said the goods trade deficit narrowed 2.5% to $72.3 billion in July as exports rebounded.
Meanwhile, adding that the United States economy may not out of control yet, a chief economist at MUFG in New York, Chris Rupkey said on Thursday's (August 29th) market closure, "The economy is still on cruise control and growing at a slow but steady pace that looks sustainable as the trade wind skies continue to darken".
When measured from the income side, the USA economy grew at a 2.1% rate in the second quarter.
Spending by households, which accounts for about 70 percent of economic growth, accelerated in the April-June quarter to its fastest pace in almost five years.
While manufacturing and housing data suggest the economy continued to slow early in the third quarter, strong consumer spending, backed by the lowest unemployment rate in almost 50 years, has eased some concerns about a downturn.
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 September 1.
Yet the data could increase caution among market players who have been expecting the central bank to maintain an aggressive pace of interest rate cuts, following a 50 basis points reduction to the key rate last month, she added.More news: State of Emergency issued for Duval County, mandatory evacuations start Monday
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Within industrial production, which until now had been one of the weakest parts of the economy, manufacturing activity grew by 2.0% on the quarter and construction rose 1.9%, IBGE said.
Declining exports and smaller inventory build drove the USA gross domestic product growth down more than originally thought in the second quarter, revised numbers released by the Commerce Department reveal. He is counting on rising wages and low unemployment to keep consumers spending.
The contribution to the quarterly rate of growth in GDP from government spending was also marked down, from 0.85 points to 0.77. A report from the Labor Department on Thursday showed the number of Americans filing for state unemployment benefits increased slightly last week.
For all of 2019, economists estimate that GDP will slow to around 2.2% and then drop to below 2% in 2020 as the economy faces headwinds from the global slowdown and the uncertainties generated by Trump's escalating trade war with China.
Growth in inventories was revised down to a $69.0 billion rate in the second quarter from the previously estimated $71.7 billion pace.
"The second-quarter data will stanch the wave of pessimism we were seeing in revisions of growth forecasts, and could bring about upward revisions", said Luciano Rostagno, chief strategist at Banco Mizuho do Brasil. It was pulled down by a 9.4% pace of decline in spending on structures, which reflected drops in commercial and healthcare, and mining exploration, shafts and wells.
The revised figures confirmed the slowdown from the start of the year - with far weaker housing, oil exports, tourism and local government spending. Spending on homebuilding contracted for a sixth straight quarter, the longest such stretch since the Great Recession.