Washington (United States) (AFP) – The United States saw slowing growth in the second quarter, the Commerce Department said Thursday, with fallout from President Donald Trump’s Iran war weighing on the world’s largest economy. GDP grew at a sluggish annualized rate of 1.5 percent in the second quarter, the Bureau of Economic Analysis said, missing analyst expectations of around 2.0 percent. It had grown by 2.1 percent in the previous quarter, BEA data showed.
“Compared to the first quarter, the deceleration in real GDP in the second quarter reflected a downturn in government spending and decelerations in investment and exports that were partly offset by an acceleration in consumer spending,” the BEA said in a statement. The bureau also cited an increase in imports — which are subtracted from GDP — as a factor in Thursday’s data. The US economy has displayed robust growth in recent quarters despite headwinds from a turbulent tariff policy and the Iran war, which has seen energy and fertilizer prices skyrocket.
Economic growth has been buoyed by investments in the AI boom, but consumption has been hit by years of high prices, compounded by the effects of the war. The economic health of US households is a key issue in November midterm elections, which will see Democrats attempt to wrest control of Congress from Trump’s Republicans. The White House praised the latest GDP figures, with spokesman Kush Desai saying “the core drivers of economic growth continue to surge.”
– Inflation high but slowing –
On Thursday, BEA data showed that Personal Consumption Expenditures (PCE) inflation had slowed to 3.7 percent in June, from 4.1 percent the month before. The indicator is the US Federal Reserve’s preferred gauge of inflation, as it takes into account a broader swath of spending than the Consumer Price Index (CPI) data. The Fed has a long-term two-percent target for PCE inflation, but prices have surged in recent months and have remained above target for more than five years, since the pandemic.
On Wednesday, the Fed chose to keep interest rates steady despite those push factors, although three policymakers dissented and called for an immediate rate hike. Core PCE inflation, which strips out volatile food and energy prices, came in at 3.3 percent. PCE inflation is expected to pick up again in July on the back of Trump renewing the military offensive on Iran, which has driven energy prices back up.
Democratic Senator Elizabeth Warren was scathing in her criticism of Trump over the persistently high prices, citing how inflation has increased since he took office. “Trump promised to lower costs ‘on day one’ — instead, his failed economic agenda, from his chaotic tariffs to his illegal war in Iran, has fueled higher costs and eaten away at paychecks,” she said.
– ‘Resilience’ –
Chris Zaccarelli of Northlight Asset Management said the lower inflation figure may give the Fed room to continue holding rates, but the GDP figures could be a warning that the economy “is slowing too quickly.” Michael Pearce, chief US economist at Oxford Economics, said the GDP figure was not entirely negative, as it showed non-AI investment had posted its biggest increase in three years. “We expect that recovery to broaden in the coming quarters, driven by tax cuts and lean inventories,” he said.
“The subdued 1.5 percent annualized rise in GDP in Q2 underplays the economy’s strength as it reflects a drag from rising imports and falling inventories that won’t be sustained for long.” Kathy Bostjancic, chief economist at Nationwide, offered a similar assessment of Thursday’s sluggish figure. “The softish headline Q2 GDP reading masks strength in the core private domestic sector that expanded by a vibrant 3.9 percent,” she said. “This underscores the resiliency of the economy in the face of the energy price shock emanating from the war in the Middle East.”
© 2024 AFP
