Economy

Business Investment is Now Negative

JM Ashby
Written by JM Ashby

The economy grew at an annualized rate of 2.1 percent during the second quarter of the year according to the Commerce Department which released their initial estimates this morning.

That's slightly better than the 1.8 percent growth expected by economists, but their report also highlights how vulnerable our current situation is.

Business investment is actually negative, for example, and the only thing keeping the economy humming appears to be consumer spending.

From Bloomberg:

Consumer spending, the biggest part of the economy, increased 4.3%, while government spending climbed 5% and offered the biggest boost in a decade. Nonresidential investment fell 0.6% for the first drop since 2015 and residential decreased for a sixth straight period. [...]

Friday’s report showed fresh evidence that trade is weighing on the expansion as exports dropped 5.2% while imports rose just 0.1%. Overall growth on a year-over-year basis slowed to 2.3%, the weakest pace in two years.

If Trump were to impose additional tariffs on over $300 billion in Chinese goods, there's no doubt that crucial consumer spending would suffer. Trump's tariffs have not yet hit items like shoes, shirts, toys, and electronics. Most of what we're paying tariffs on now is visibly hidden from us because they're industrial goods or items that aren't an everyday purchase for most people.

One thing we do know will continue is government spending. Treasury Secretary Steve Mnuchin and Speaker of the House Nancy Pelosi have reached a deal that will increase spending by over $300 billion over the next two years.

And I can't help but laugh, you know? One of the reasons the economy could have been described as "sluggish" during some quarters the Obama administration is because government spending was falling.

And now? Republicans will spend anything as long as we don't spend it on health care.

  • muselet

    You can tell how worried the Trump administration is about the economy by the amount of government spending it is willing to countenance. It’s amusing that the administration is trying to play Hide the Pea (“Oh, forget that increase in domestic spending, look at all the money we’re going to throw at the military!”) so The Base won’t get too bent out of shape.

    The state of the economy would be somewhat less alarming if Donald Trump weren’t threatening to impose tariffs on everything produced by every country on the planet (in normal times, 2.1% annualized growth would be considered no worse than so-so).

    –alopecia