The US economy expanded at a slower pace than previously thought in the second quarter as the strongest consumer spending increase in 4½ years was offset by weaker inventory and exports as trade war uncertainty grew.

Gross domestic product expanded at an annualised pace of 2 per cent in the second quarter in line with expectations, according to the revised data published by the Commerce Department on Thursday. That was slower than the 2.1 per cent growth reported in July’s first reading and remained the weakest growth since the start of 2017.

Consumer spending was revised higher to 4.7 per cent, from 4.3 per cent previously — the strongest reading since the end of 2014, the report showed. However, state and local government spending, exports, private inventory and residential investment were all revised lower.

The data come as investors grow nervous about how much longer the consumer can support what has been the longest US economic expansion on record against the backdrop of Washington’s trade war with Beijing.

The yield curve, a widely-watched predictor of recessions which reflects the gap between the short-term and long-term bond yields, has flashed its strongest signal since the onset of the financial crisis, highlighting gloom in bond markets over the back-and-forth of trade negotiations.

The Federal Reserve cut interest rates last month as some of its key policymakers voiced concerns about “uncertainties” linked to weakness in the global economy and trade tensions. The split among officials on the central bank’s rate-setting committee points to the challenge chairman Jay Powell faces in considering his next steps on monetary policy.

President Donald Trump has stepped up his calls for the central bank to do more to support the economy and dubbed Mr Powell an “enemy” of the US after the Fed chair used his speech at Jackson Hole, Wyoming last week to note that fitting trade uncertainty into its policy framework was “a new challenge”. Mr Powell added that setting trade policy was “the business of Congress and the administration, not that of the Fed.

The latest GDP report also showed core personal consumption expenditures, the Fed’s preferred inflation gauge, grew 1.7 per cent in the second quarter, down from previous estimates for 1.8 per cent growth. Sluggish inflation, which is below the central bank’s 2 per cent inflation target, has also complicated Mr Powell’s outlook for monetary policy.

“Overall, GDP growth averaged a respectable 2.6% in the first half of the year, but we’d be surprised to see that pace matched in the second half, given the parlous state of manufacturing and businesses’ reluctance to commit to capex in such an uncertain environment,” Ian Shepherdson, economist at Pantheon Macroeconomics.

A separate report on Thursday showed the US trade deficit unexpectedly narrowed to a three-month low of $72.3bn in July from $74.2bn the previous month. Economists forecast an increase to $74.4bn.

Exports grew 0.7 per cent month-on-month, while imports slid 0.4 per cent, led by a 2.6 per cent slide in capital goods. “The big picture here is that the slowdown in business investment spending is holding down imports of capital goods,” Mr Shepherdson noted.

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