GDP Growth Slows in Second Quarter – Investment and Trade Suffer

By at 26 July, 2019, 9:53 am

by Raymond J. Keating-

On July 26, the U.S. Bureau of Economic Analysis reported that real GDP slowed markedly in the second quarter of 2019.

Real GDP growth decelerated from 3.1 percent in the first quarter to 2.1 percent in the second. While growth in consumer spending accelerated in the second quarter – with real personal consumption expenditure growth moving up from 1.1 percent in the first quarter to 4.3 percent in the second – the rest of this latest GDP report was rather grim.

Real GDP Growth: First Quarter 2017 to Second Quarter 2019

Source: Federal Reserve Bank of St. Louis, FRED

First, real nonresidential (i.e., business) investment went from growing by 4.4 percent in the first quarter to declining by 0.6 percent in the second quarter.

Second, the decline in business investment included a drop of 10.6 percent in terms of structures investment, along with equipment investment barely edging forward at a rate of 0.7 percent. Equipment investment has performed poorly now for two straight quarters, as it declined by 0.1 percent in the first quarter. Investment in intellectual property products saw growth slow from a robust 10.8 percent in the first quarter to 4.7 percent in the second quarter.

Third, housing investment showed continuing troubles. Residential investment declined by 1.5 percent in the second quarter, and has now declined for six straight quarters, and in eight of the last nine quarters.

Fourth, big swings in private inventories – a temporary phenomenon – have affected growth in the last two quarters, with growth being goosed up in the first quarter and growth being reduced in the second quarter.

Fifth, trade suffered in the second quarter. Real exports declined by 5.2 percent. Export growth has suffered in three of the last four quarters. In addition, real imports barely edged forward by 0.1 percent, and that followed on a decline in the first quarter.

Sixth, while real GDP growth in the second quarter was an under-performing 2.1 percent – keep in mind that during the post-WWII period, real annual GDP growth has averaged better than 3 percent and better than 4 percent during expansion/recovery periods – growth in government (i.e., government consumption and investment) contributed disproportionately to that growth rate. Subtracting government’s contribution to the second-quarter 2.1 percent GDP growth rate, we see that private GDP grew by only 1.3 percent.

There has been a notable slowdown in real GDP growth in two of the last three quarters – registering 1.1 percent in fourth quarter 2018, 3.1 percent in the first quarter 2019, and 2.1 percent in the second quarter 2019. Business investment has slowed, as has trade. Of course, expanding investment and trade opportunities are critical to current and future economic growth.

From a policy point of view, the additional costs and uncertainties generated by the Trump administration’s protectionist trade measures and threats are weighing on investment and trade. Given the inability of the current Congress, apparently, to pass pro-growth tax and regulatory relief, it is essential for the nation’s economic well-being that the Trump administration switch course on trade from being anti-growth to being pro-growth.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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