USA Q2 2019 GDP Falls but Exceeds Expectations

Stockholm (Ekonamik) – The US economy grew at an annual rate of 2.1% during the second quarter of 2019, according to an advance estimate published by the US Bureau of Economic Analysis (BEA) at the end of July. In the first quarter, the US economy grew by 3.1%.

According to the detailed announcement, the main contributors to economic growth were “personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment.”

Personal consumption expenditure grew by 4.3%, government spending grew by 5%, driven by federal nondefense spending, which grew by 15.9%. Exports fell by 5.2% while investment in non-residential structures fell by 10.6%.

The fall in exports and the rise in government spending may be symptomatic of the US-China trade war, which has seen exports collapse, particularly among agricultural products, causing the Trump Whitehouse to provide subsidies to farmers in the important and traditionally conservative Midwest states.

The figures were at the top of the forecast range from the Atlanta Fed’s GDPNow model, which have floated between 0.9% and 2.1% since April. The peak GDPNow forecast, which matched the advance estimate, was obtained at the end of June, but thereafter the model seems to have underestimated GDP growth.

“The relatively quiet economic calendar this week was neatly bookended by the U.S. GDP report for Q2, which revealed that, despite some deceleration, the economy had a little more pep in its step than previously expected,” commented Carl Campus, Economist at BMO Capital Markets. “The economy expanded 2.1% a.r., notably marking the 40th consecutive quarter of expansion, matching its longest previous expansion (from 1991-2001). Still, with rate expectations hanging in the balance, the Fed likely remains undeterred from making an insurance cut next week given risks posed by trade disputes and as other geopolitical tensions continue to loom large.”

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