US economy slumps to slowest pace since Trump took office as trade war hurts exports

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US economy slumps to slowest pace since Trump took office as trade war hurts exports

Growth fell to 2.3 per cent in 2019 as household spending slowed down

Phil Thornton6 hours ago

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A recent survey of chief financial officers by Deloitte showed that 97 per cent of respondents thought that the US was either already in a downturn or would be at some point this year ( EPA )

The American economy slowed further below Donald Trump’s 3 per cent target last year as export volumes were hit by the trade war with China and a slowdown in household spending, official figures showed on Thursday.

GDP rose by 2.3 per cent in 2019, its weakest expansion in three years and a slowdown from the 2.9 per cent achieved in the previous year, the Commerce Department said.

The figures, which came 24 hours after the US Federal Reserve downgraded its outlook for household spending growth to “moderate” from “strong”, will keep the idea of a cut in interest rates on the table.

Fed chairman Jerome Powell gave a hint of looser policy on Wednesday night when he that the current stance of monetary policy was appropriate in supporting inflation “returning to the committee’s symmetric 2 per cent objective”. This was a change from its previous meeting, when the statement said, “near the Committee’s … objective”.

Paul Ashworth, chief US Economist at Capital Economics, said: “We don’t expect the Fed to cut interest rates again this year, but Jerome Powell’s press conference yesterday was a good reminder that officials are still committed to getting back to the 2% target.

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According to the Commerce Department, the slowdown in real GDP in 2019, compared to 2018, primarily reflected decelerations in business investment and personal consumption expenditure and a downturn in exports, which were partly offset by accelerations in both state and local and federal government spending.

The economy grew at an annualised pace of 2.1 per cent in the final quarter of 2019, the same as in the previous three months with consumption growth slowing and business investment contracting for a third consecutive quarter.

The figures do not cover any of the period when the coronavirus epidemic took hold in China. The survey of purchasing managers will be the first indicator of an impact on growth from falling confidence of reduced exports.

A recent survey of chief financial officers by Deloitte showed that 97 per cent of respondents thought that the US was either already in a downturn or would be at some point this year.

James Knightley, chief international economist at ING bank, said: “It is far too early to say whether the coronavirus outbreak will have a dampening effect on US economic activity, but in an environment of already subdued global growth it certainly increases the downside risks.”

Earlier this week an inversion in the bond yields curve – where it costs less to borrow over the long- than the short-term, was seen as a sign of growing worries in the markets about the is human and economic threat of the virus.

“The more that it does the more likely it starts to alter consumer and corporate behaviour, thereby prompting policy action [by the Fed] to mitigate the dangers,” said Knightley who already expects a slowdown in annual growth to just 1.5 per cent in the first quarter of 2020.

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US Economy Slumps to Slowest Pace Since Trump Took Office as Trade War Hurts Exports

Donald Trump put a 3 percent growth target on the American economy last year but the growth slowed far below this anticipation. The reason for this was the effect the trade war with China had on exports and a slowdown in household spending. Growth in GDP was recorded at 2.3 percent which was the weakest in three since 2015 and a slowdown from the 2.9 percent recorded in 2018 according to the Department of commerce. In economics, an increase in exports translates to higher economic growth and a decrease in exports has the reverse effect.

The US Federal Reserve downgraded the position of household spending growth from “strong” to “moderate, 24 hours before the Commerce Department issued their statement on the nation’s economic growth. The slowdown in GDP is attributed to low personal consumption expenditure and a decline in exports. The trade war with China that is to a certain extent responsible for the decline in exports has created a chain that has impacted the ability of Americans to purchase basic items or spend at a consumption level. In microeconomics, exports generate employment, especially in the manufacturing and agricultural industries. A decline in exports may push firms to downsize and leave people without jobs thereby jeopardizing their ability to purchase basic for personal consumption. Usually, consumers stop spending on items that are not of absolute necessity or those that can be considered luxuries. Most

In connection to economic growth, the decline in exports reduces aggregate demand, which determines the direction of economic growth. China is the second-largest market for the United States’ agricultural produce (Bandyopadhyay, Bharadwaj & Roy). So when the agricultural exports are not doing so well as a result of China’s retaliation in the trade war, the local economy which includes shops, bars, hotels and so forth will not benefit from the increased spending of the people benefiting from these exports leading to an economic downturn.

Works Cited

Bandyopadhyay, Y., et al. “Taking a Closer Look at U.S. Exports to China.” Federal Reserve Bank of St Louis, 12 Sept. 2018, www.stlouisfed.org/publications/regional-economist/third-quarter-2018/closer-look-exports-china. Accessed 30 Jan. 2020.

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