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U.S. economic growth decelerated in the second quarter by more than initially reported, suggesting President Donald Trump’s trade actions are weighing more heavily on the pace of expansion.
Inflation-adjusted gross domestic product grew at a 2% annualized rate, according to Commerce Department data Aug. 29 that matched analyst estimates and compared with an initially reported 2.1%. Consumer spending, which makes up about two-thirds of the economy, grew 4.7%, topping all forecasts with the biggest gain since 2014.
The stronger consumption was offset by weaker readings across other categories, including exports, inventories, residential investment and state and local government spending.
The report signals Trump’s 3% annual growth goal may be even more out of reach as the world’s largest economy faces complications from his tariffs on Chinese goods, which may further weigh on the outlook with levies set to increase Sept. 1. Investors have sent bond yields plummeting while economists project weaker growth in the second half and have boosted odds that the record-long expansion will end in the next 12 months.
Following the report, Trump tweeted yet another barb at the Federal Reserve. He wrote, “The Economy is doing GREAT, with tremendous upside potential” and “if the Fed would do what they should, we are a Rocket upward!”
The economic environment has become even less predictable since June. After the Fed cut interest rates July 31 for the first time in a decade, Chairman Jerome Powell noted at the Jackson Hole symposium Aug. 23 that the following weeks “have been eventful” with Trump’s latest tariff threats and further evidence of a global slowdown.
The latest signs of weakness may add to calls for policymakers to make another reduction at their next meeting in September.
After a 3.1% pace in the first quarter, economists forecast third- and fourth-quarter growth under 2%. What’s more, revisions from July showed GDP grew 2.5% on a fourth-quarter-over-fourth-quarter basis last year, down from a prior estimate of 3%.
The Aug. 29 report underscored the extent to which consumers can help sustain an expansion that’s wobbling elsewhere. The composition of the revision showed that personal consumption expenditures, the biggest driver of growth in the period, contributed 3.1 percentage points to GDP growth after an initially reported 2.85 points.
Net exports subtracted 0.72 point, more than the initial drag of 0.65 point, while nonresidential fixed investment remained a slight drag.
That may point to the impact of Trump’s tariffs as companies delay investment and potentially begin passing higher costs along to consumers.
Excluding the trade and inventory components of GDP, which remained the main drags on the second quarter after giving a big boost in the first, final sales to domestic purchasers increased at an upwardly revised 3.6% pace. This measure, often looked to by economists as a gauge of underlying demand, suggests growth in the quarter was stronger than the headline number indicated.