U.S. economic growth slowed in the second quarter by less than forecast as consumer spending topped estimates, though weaker business investment and exports underscored the risks spurring the Federal Reserve toward an interest-rate cut next week.
Gross domestic product expanded at a 2.1% annualized rate, according to Commerce Department data Friday that topped forecasts for 1.8%. That follows an unrevised 3.1% advance in first quarter and updated data showing growth last year was slower than previously reported.
Consumer spending, the biggest part of the economy, increased 4.3%, while government spending climbed 5% and offered the biggest boost in a decade. Nonresidential investment fell 0.6% for the first drop since 2015 and residential decreased for a sixth straight period.
Treasury yields rose as the data further reduced chances of a half-point Fed interest-rate cut next week, instead of the expected quarter-point.
The mixed report highlights how President Donald Trump -- who’s repeatedly called for lower interest rates -- is enjoying signs of a solid economy while his trade war with China weighs on the expansion and fuels uncertainty for global businesses. Revised data released Friday showed the economy missed Trump’s 3% growth goal in 2018, after previous data had showed it matching.
The report on the broadest measure of all goods and services comes as Fed is expected to cut interest rates next week by a quarter point. The GDP report isn’t likely to sway that outcome, though officials are likely to consider the weakness in trade and corporate investment as risks to the economic outlook.
Friday’s report showed fresh evidence that trade is weighing on the expansion as exports dropped 5.2% while imports rose just 0.1%. Overall growth on a year-over-year basis slowed to 2.3%, the weakest pace in two years.
Final Sales
Excluding the volatile trade and inventories components of GDP, final sales to domestic purchasers increased at a 3.5% pace, the best in a year.
Economists monitor this measure for a better sense of underlying demand. Inventories were a drag on growth, subtracting 0.86 point from growth after a 0.53 point contribution in the prior period.
The Fed’s preferred underlying inflation measure, the personal consumption expenditures price index excluding food and energy, firmed to a 1.8% annual pace in the quarter, closer to policy makers’ 2% objective.