GDP Misses; Fed Speakers Warn About Trade Disputes Adding Risk to U.S. Economic Growth

On Thursday, the U.S. Commerce Department that gross domestic product increased at a 2.0 percent annual rate in the January-March period. This, third and final estimate of first-quarter GDP came in below the 2.2 percent pace reported in the second estimate released last month.

The report showed that the U.S. economy slowed more than previously estimate in the first quarter amid the weakest performance in consumer spending in nearly five years, but growth appears to have since regained momentum on the back of a robust labor market and tax cuts.

According to the Commerce Department, the economy grew at a 2.9 percent rate in the fourth quarter. It went on to say that the downgrade to first-quarter growth reflected weaker consumer spending and a smaller inventory accumulation than the government had estimated last month.

Economists had expected first-quarter GDP growth would come in unrevised at a 2.2 percent pace. Additionally, an alternative measure of economic growth, gross domestic income (GDI), increased at a brisk 3.6 percent rate in the January-March quarter. That was revised up from the 2.8 percent pace reported last month.

Looking ahead, some economists suggest the U.S. economy could top 5% growth in the period running from April to June, the highest rate in 15 years.

Weekly Unemployment Claims

The government reported on Thursday that the number of Americans filing for unemployment benefits increased more than expected during the week-ending June 22, but the trend in claims remained consistent with a tightening labor market.

Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 227,000 last week, the Labor Department said on Thursday. Economists had forecast claims rising to 220,000 in the latest week.

Fed Speakers

Federal Reserve presidents James Bullard and Raphael Bostic warned that worries over escalating trade disputes are increasingly weighing on businesses and adding risks to the U.S. economic outlook.

St. Louis Fed President Bullard said he’s hearing “full-throated angst” from regional companies, while Atlanta Fed President Bostic said businesses are “extremely concerned about the prospects of a trade war.”

Bullard also said the Fed should not raise interest rates just because second-quarter GDP growth may surge. With some economists forecasting 5% growth in the second quarter, the highest rate in 15 years, Bullard said the surge in growth is likely to be temporary and the economy’s growth rate will likely be on a downward trend in 2019 and 2020.

So the Fed should not react with a “permanent rate hike” to a temporary” increase in output, Bullard said.