US economy growth is slowing down. How long will this last? Growth of the US economy slowed down in the second quarter of this year. April to June, the economy increased by only 1.2%, well below the forecasted figure of 2.6%.
There had also been a reduction in the US economy growth forecast for the first quarter from 1.1% to 0.8%. This is despite the fact that consumer spending increased in the second quarter by an annual pace of 4.2%, the fastest consumer spending growth since the final quarter of 2014. The GDP data are a first estimate for April to June growth, and it will not be until the 26th August that a second figure will be issued based upon increased data.
Increased consumer spending has an effect on the growth of the US economy, although there are many more metrics other than that. Business investment fell by 9.7% and business inventory investments declined by $8.1 million in the quarter, indicating a lack of orders due to a reduction in consumer spending. This is the first drop in inventory investment since 2011.
According to the head of global foreign exchange at Citigroup, Steven Englander, these figures do not suggest a significant drop in the US economy although they do suggest that a September Fed interest increase is more unlikely. On the other hand, the Federal Reserve has stated that increased interest rates are still on the cards this year after unemployment rates and other relevant factors have decreased.
The chief economist at Markit, Chris Williamson, stated that companies should hopefully begin to increase their levels of stock in the half-year from July. This, in spite of subdued or reduced business spending, as suggested by Thursday figures from the government.
The United States trade deficit has increased from $61.1 billion May, to $63.3 billion in July. Importing less than exporting means a net loss of revenue to the country. Increasing interest rates tends to reduce borrowing to expand – it is a vicious circle.
US economy growth and the Federal Reserve tend to go hand in hand. When the US economy declines, and people spend less, then reduced interest rates lead to more spending. That is why the current situation is so volatile in the USA. An interest rate hike will reduce borrowing and businesses will invest less in expansion. People will spend less, and the rate of US economy growth may decline. Perhaps that is what is happening now – the future will tell!
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