U.S. economic growth slowed less than expected in the second quarter as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build, which could further allay concerns about the economy’s health.
The fairly upbeat report from the Commerce Department on Friday will probably not deter the Federal Reserve from cutting interest rates next Wednesday for the first time in a decade, given rising risks to the economy’s outlook, especially from a trade war between the United States and China.
Despite the better-than-expected GDP reading, business investment contracted for the first time in more than three years and housing contracted for a sixth straight quarter. Fed Chairman Jerome Powell early this month flagged business investment and housing as areas of weakness in the economy.
But robust consumer spending, together with a strong labor market, further diminish expectations of a 50 basis point rate cut and could raise doubts about further monetary policy easing this year.
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