It’s not exactly a game of Clue to figure out Friday’s weakish report on second-quarter economic growth, says TimMullaney: Mr. President did it, in the factory, with a tariff.
It’s not exactly a game of Clue to figure out Friday’s weakish report on second-quarter economic growth: Mr. President did it, in the factory, with a tariff.
As the headlines say, the economy grew at an annual rate of 2.1% between April and June. Consumer spending rose at a 4.3% clip and investment, which was supposed to be juiced by Trump’s late-2017 tax cut, fell by a 5.5% rate, highlighted by a 10.6% drop in spending on commercial structures, the third drop in the last four quarters. Exports declined 5.2%.
When the Federal Reserve declined to cut interest rates in June, despite the president’s loud pleadings, Fed Chairman Jerome Powell cited a number of reasons for the economy’s softness. The one I flagged then, still the most on-point now, is that business appears to be reacting to threats to global supply chains by holding off on investing where they can.
The evidence is also clear enough now to bury the president’s tax cut, after barely pausing to praise it last year. The bill, which directed most largesse to business owners and corporations, was supposed to accelerate the economy by accelerating investment. But aside from a huge jump in inventories in the third quarter of 2018, it never happened.
A half-point cut feels alarmist: The Fed would be sending out a signal that the economy needs to be rescued, when the numbers today point to something less dire, especially given the strong consumer spending.
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