April 14, 2021

US moderates growth in the second quarter | Economy

The pace of growth in the United States moderated in the second quarter at an annualized rate of 2.1%. It is a performance of the economy one percentage point lower than the start of the year although it is three tenths better than expected. Some components reflect the effect of tariff warfare. This is the last relevant indicator before the Federal Reserve meeting, in which expected to reduce interest rates for the first time since the financial crisis.

Economists often consider an acceptable 2% growth rate, close to potential. The market consensus anticipated 1.8%. The first reading would thus be more in line with the 2.5% reported during the last three months of 2018. The rebound in the first was largely explained by the rise in inventories. The International Monetary Fund projected This week the year will close at 2.3%.

The detail shows a clear dichotomy in growth. Private consumption, which accounts for two thirds of growth, resists and expanded at a rate of 4.3%. It is much better than the anemic gain of less than 1% in the first three months of the year. But companies are reducing investments, which fell about 1% after rising more than 4% in the previous quarter, which could reflect the weakening of the global economy and the tariff war.

The trade deficit widened in the second quarter after falling in the first. That also had a ballast effect on growth. Exports fell 5.2%. Imports, meanwhile, remained in spite of the protectionist policy of President Donald Trump. This component shows that consumer demand is high for products that arrive from abroad. Investment in real estate fell 1.5%.

Looking at the Fed

The market, meanwhile, demand a rate reduction as a guarantee to sustain growth. The Fed will announce its decision on Wednesday. The cut is taken for granted, although the data and the results indicate that a rescue is not necessary. The question is whether it will be a quarter point or a half. The interventions of the members of the central bank tended so far towards less aggressive action, with the possibility of a new cut in September or December.

The price of money is stagnant in the US in a band between 2.25% and 2.5% since December. A more aggressive action, however, would allow it to influence the rate curve in the bonds. In that hypothesis, I also wouldn't need to cut back later and could maintain the patience strategy. The inflation component of GDP data shows that they rose four tenths in the quarter.

The third-quarter economic indicators published so far are, however, better than expected. It is the case of employment and retail. Jerome Powell, the president of the Fed, mentioned in any case the external factors that can affect growth. Mario Draghi, his equal in the European Central Bank, left the door open this Thursday to new cuts.

The government adjusted growth data in parallel since 2014. The expansion for 2018 is 2.9%, slightly below the 3% target that Donald Trump promised. The president of the United States is criticizing the Fed for having led the rise in interest rates too fast and too fast. The average growth for the period from 2013 to 2018 was 2.5%.

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