Consumers help U.S. economy avoid deeper slowdown

Credit: Reuters Studio
Published on July 26, 2019 - Duration: 01:51s

Consumers help U.S. economy avoid deeper slowdown

The U.S. economy surprised to the upside in the second quarter, growing at an annualized 2.1 percent rate thanks to the strongest measure of consumer spending in 2-1/2 years.

The data lower the chance the Federal Reserve will do more than a quarter-point rate cut next week.

Conway G.

Gittens reports.

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Consumers help U.S. economy avoid deeper slowdown

The U.S. economy came in hotter than expected in the final piece of the puzzle before an important decision by the Federal Reserve.

Figures on Gross Domestic Product, or GDP released on Friday, show the U.S. economy grew at a 2.1 percent annual rate during the April to June period.

The mighty U.S. consumer did the heavy lifting.

A surge in household spending - at the fastest rate in 2-1/2 years - more than offset any drag coming from a drop in exports brought on by President Trump's "America First" trade spats.

SOUNDBITE (ENGLISH): REUTERS BUSINESS CORRESPONDENT CONWAY G.

GITTENS, SAYING: I'm Conway Gittens in New York.

This better-than-expected report pretty much wipes off the table the idea that the Fed will be aggressive in its meeting next week.

The Fed is widely expected to cut rates for the first time in a decade.

Markets had been pricing in a small chance of a half-point rate cut - but with the consumer this strong and the labor market moving full speeding ahead - looks like Wall Street will have to settle for just a quarter point rate cut.

And the GDP report also raises the chance that when it comes to this rate cut - the Fed may be one and done.

Putting the consumer aside there are signs of weakness out there.

Business investment contracted for the first time in three years and housing activity is down for the sixth straight quarter.

And the overall economy is slowing as the effects of the Trump tax cuts wane.

SOUNDBITE (ENGLISH): REUTERS BUSINESS CORRESPONDENT CONWAY G.

GITTENS, SAYING: "Federal Reserve Chairman Jerome Powell is worried America's trade war with China, the world's second biggest economy, and a number of events overseas will further slowdown things at home." An expected quarter-point rate cut next week is being viewed as an insurance policy against that slowdown turning into an all-out recession.

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