This Bad News About the US Economy Made GDP Growth Fall to 2% in 2018
When it came to GDP growth in the first quarter of 2018, the Trump administration’s final numbers were lower than it estimated. In fact, the 2% growth reported on June 28 represented the worst figures since early 2017.
However, when it came to the consumer spending data that dragged growth down, the numbers were the worst they’ve been since 2013. Combined with a jump in jobless claims, the news sent the stock market down once again.
Poorest spending increase in 5 years
While consumer spending typically drops in the beginning of the year, Commerce data showed it plunging from a 4% growth rate in the fourth quarter to 0.9% in the first three months of 2018. That type of growth is the worst seen since April-June 2013, Reuters reported.
The weak domestic demand created $6.3 billion less in warehouse inventories than the government first estimated, the data showed. Meanwhile, capital spending has not followed the narrative GOP tax plan proponents pushed ahead of the bill passing. (Most of that money has gone to stock buybacks.)
The news had the Dow Jones stock index dropping nearly 100 points in early trading on June 28. Earlier in the week, stock market losses were tied to trade policies investors saw as bad for the economy.
9,000 new unemployment claims
In addition to the news on lower spending, applications for unemployment benefits rose by 9,000 claims in the week ending June 23. That put the figure at 227,000 (seasonally adjusted).
Overall, the unemployment rate held at 3.8%, which remains its lowest mark since 2000.
That jobless rate, along with encouraging signs for second-quarter growth, kept economists optimistic looking toward the next GDP estimate coming in July. At the high end, the Atlanta Federal Reserve forecast 4.5% growth ahead.
However, the poor performance in the first quarter will likely keep GDP growth for the year at or below 3%
Bad news about wages lingering
The weak consumer spending results matches up with Trump administration data on wage growth through May 2018. Overall, nearly four fifths (80%) of private-sector employees saw their take-home income drop in the past year.
That bad news applied to workers in manufacturing, production, and other non-supervisory jobs (including fast-food workers and cashiers). Inflation, which has grown faster than actual wages, continues to hold most Americans’ income down in 2018. Higher oil prices — resulting in higher gasoline costs — will keep that trend going.
Meanwhile, economists are concerned that Trump’s trade wars with China and Europe could undercut any potential gains America would see from the massive (40%) corporate tax cuts passed by the GOP in late 2017.
One of the first casualties of the trade wars was Harley-Davidson. The motorcycle company announced it would be offshoring production after its bikes got a 31% retaliatory tariff from the EU. Other companies — including Boeing, Tesla, and Caterpillar — faced uncertain times ahead as well.
In general, Trump’s economic policies have yet to benefit the majority of workers in America. June’s GDP news only added to the case.
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