The US economy is running out of steam with 2.1% growth in the second quarter

US economic growth slowed in the second quarter, less than expected, as consumer spending exceeded estimates, although weak business and export investment pointed to risks that prompted the Federal Reserve to cut rates in the first quarter. interest next week.

Gross domestic product grew at an annualized rate of 2.1%, according to Commerce data released Friday, exceeding expectations at 1.8%. This follows an unrevised advance of 3.1% in the first quarter and updated data showing that last year's growth was slower than before.

Consumer spending, which accounts for the largest part of the economy, rose 4.3%, while government spending rose 5% and recorded the largest increase in a decade. Non-residential investment declined 0.6% for the first decline since 2015 and residential investment declined for a sixth consecutive period.

"We have pockets of weakness in the manufacturing and business investment sectors, but just like the consumer, the US economy is doing the same – consumer fundamentals are very, very good," Ryan said. Sweet, economist at Moody's Analytics. "Unless the consumer starts to get interested, I think the US economy is going to go through this little hole without anything getting worse."

Treasury yields and the dollar have first risen, the data likely reducing the chances of a more aggressive easing on the part of the Fed this year.

The mixed report points out that President Donald Trump – who has repeatedly called for lower interest rates – is showing signs of a solid economy as his trade war with China weighs on expansion and feeds the economy. uncertainty of global companies. Revised data released on Friday showed the economy was failing Trump's 3 percent growth target in 2018 after the previous data correlated it.

The report on the broadest measure of all goods and services comes as the Fed is expected to cut interest rates next week by a quarter of a point. The GDP report is not likely to influence this outcome, although managers are likely to view weak trade and business investment as a risk to the economic outlook.

Friday's report showed new evidence that trade was weighing on expansion, with exports falling 5.2% while imports were up only 0.1%. Overall year-over-year growth slowed to 2.3%, the slowest pace in two years.

Excluding the volatile components of trade and inventories in GDP, final sales to domestic buyers rose 3.5%, the best of the year. Economists are monitoring this measure to better understand the underlying demand. Inventories weighed on growth, subtracting 0.86 points from growth after a 0.53 point contribution to the previous period.

The preferred measure of core inflation, the price index for personal consumption expenditure excluding food and energy, strengthened at an annual rate of 1.8% in the quarter, which is closer the goal of 2% of decision makers.

The expansion, which has become the longest of all time, is slowing as the fiscal stimulus for 2018 eases and global growth decelerates, with the International Monetary Fund reducing its estimates further. early this week. A stronger dollar and new rates also make it less desirable to do business with the United States.

Other data have highlighted slower growth, with manufacturing figures indicating lukewarm conditions and Caterpillar indicating a poor second quarter. The measure of US output has declined in consecutive quarters, the common definition of the recession, while the indicator of global factory activity contracted in May and June.

A more optimistic report showed Thursday that orders for office equipment had risen sharply in June since the beginning of 2018, indicating that business investment could regain momentum that would help support the economy over the next few years. month.

Consumer confidence is close to record highs and strong spending supports growth. Retail sales rose for four straight months, the longest run since the start of 2018, indicating that Americans are benefiting from a tight labor market and high wages. The Starbucks coffee chain said Thursday that sales in comparable stores in the United States had increased 7% over the previous year.

"This report shows that we are not witnessing a shock of the American consumer," Denise Chisholm, strategist at Fidelity Management, said in an interview with Bloomberg Television. "It's positive in the context of, we could see an extended cycle of expansion continue."

Mr Trump is aiming for growth of around 3%, although economists believe that the pace of growth remains below 2% at least until the end of next year. The revised GDP figures released Friday show a 2.5% growth from the fourth quarter to the fourth quarter of last year. This compares to a previous estimate of 3% and a 2.8% upward revision in 2017, the first year of Mr. Trump's presidency.

Government spending was boosted by a 15.9% increase in federal non-defense spending, which has been the largest contributor to growth in two decades. This was fueled by delays in the pay of some federal employees after the government closed which ended in January.