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THE BIG DEAL–US economy slows to 2.1 percent growth in second quarter: Economic growth in the U.S. slowed in the second quarter of 2019 after a torrid start to the year, according to data released Friday by the Commerce Department.
U.S. gross domestic product (GDP) grew at an annualized rate of 2.1 percent between April and June, in line with expectations but well below the 3.1 percent growth-rate notched in the first three months of 2019.
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The report showed signs of resilience for the U.S. economy as it stretches a record decade of expansion toward the 2020 presidential election. President TrumpDonald John TrumpIlhan Omar defends Cummings after Trump attacks: He ‘wants to distract with his racism’ Donald Trump: ‘The Great Divider’ De Blasio: Democratic debates should address ‘why did we lose and what do we do differently’ MORE‘s reelection chances could largely depend on the strength of the economy and if he succeeds in taking credit for it.
While steady growth and near-record joblessness bode well for Trump now, the mounting damage from his trade policy and other international obstacles pose unmistakable threats.
I explain why here.
The good: Surges in consumer spending and government spending carried the U.S in the second quarter while the business sector braced for a souring global forecast.
- Consumer spending, which makes up roughly 70 percent of the economy, spiked 4.3 percent in the second quarter, rebounding from a 1.1 percent rise in the first quarter.
- Government spending also rose 5.5 percent in the past three months, likely due to expenditures delayed during the federal shutdown.
The bad: Productivity-boosting business investment declined 0.6 percent in the same period, reflecting concern about the long-term health of the U.S. economy.
- Inventories held by businesses shrank by $44.3 billion while exports sunk 5.2 percent, showing a sharp decline in global demand for U.S. goods. Shortfalls in inventories and exports also weigh heavily on GDP.
- “While manufacturing data have been weaker in the first half of the year than we might desire, recent data point to signs of a possible rebound moving forward, and the labor market remains solid,” said Chad Moutray, chief economist for the National Association of Manufacturers (NAM), in a statement. “The global economy, however, is generating headwinds that impact this outlook.”
The political context: The report showed signs of resilience for the U.S. economy as it stretches a record decade of expansion toward the 2020 presidential election. President Trump’s reelection chances could largely depend on the strength of the economy and if he succeeds in taking credit for it.
Trump also lost a useful economic talking point Friday when the Bureau of Economic Analysis issued a slew of revised GDP data, including a downward revision to last growth totals.
Previous government data showed Trump had fulfilled his campaign pledge of 3 percent expansion — a key measure of growth that the president and his allies have used to tout the administration’s economic accomplishments — but the year-over-year figure was lowered to 2.5 percent on Friday.
LEADING THE DAY
House panel releases documents of presidential tax return request before Trump: The House Ways and Means Committee on Thursday released documents showing Democrats’ request for President Trump’s tax returns is not the first time Congress has requested a president’s tax returns from the IRS.
“The point that we were trying to make is that after reference and research and successfully seeking documentation, we were able to establish that in fact the Joint Committee on Taxation did use 6103 to review President Nixon’s returns,” Ways and Means Committee Chairman Richard NealRichard Edmund NealOn The Money: US growth slows to 2.1 percent | Trump vows response to French tech tax | Trump won’t give Apple tariff waivers | House panel releases documents on Nixon tax return request to bolster case against Trump House panel releases documents of presidential tax return request before Trump On The Money: House passes sweeping budget, debt limit deal | Dem court filing defends powers to get Trump’s NY tax returns | Debt collectors to pay M to settle consumer bureau charges MORE (D-Mass.) told reporters after the vote, referencing Section 6103 of the federal tax code.
The Hill’s Naomi Jagoda explains here how this fits into the fight over Trump’s tax returns.
Trump vows ‘substantial reciprocal action’ against France over tech tax: President Trump vowed Friday to take “substantial reciprocal action” against France after President Emmanuel MacronEmmanuel Jean-Michel MacronHillicon Valley: DOJ approves T-Mobile-Sprint merger | Trump targets Google, Apple | Privacy groups seek to intervene in Facebook settlement | Democrats seize on Mueller hearings in election security push On The Money: US growth slows to 2.1 percent | Trump vows response to French tech tax | Trump won’t give Apple tariff waivers | House panel releases documents on Nixon tax return request to bolster case against Trump Trump vows ‘substantial reciprocal action’ against France over tax targeting tech giants MORE signed into law a tax targeting technology giants like Amazon and Google.
“France just put a digital tax on our great American technology companies,” Trump tweeted. “If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!”
Trump, who says he does not drink, later clarified that he prefers the way American wines look versus their French rivals.
Macron this week signed the digital services tax, which imposes a 3 percent tax on the annual revenues of technology companies that make at least 750 million euros annually and provide services to users in the country.
The tax would affect several companies, including U.S.-based tech giants like Apple, Google, Facebook and Amazon.
While Trump bashed France for targeting U.S. tech firms, the president took his own shots Friday at two of the affected Silicon Valley giants.
- Trump on Friday rejected Apple’s request to exempt parts of its new Mac Pro from import tariffs after the company said it is planning to move some production to China.
- The president also suggested his administration would investigate Google’s work in China for potential national security issues just days after his top Treasury official said the government had looked into the company and found no cause for such concerns.
In other trade war news: President Trump wants the World Trade Organization (WTO) to prevent countries like China from labeling themselves “developing,” arguing that some member nations are abusing that status to operate under more lenient rules.
DOJ approves T-Mobile, Sprint merger: The Department of Justice on Friday announced it has approved the $26 billion T-Mobile–Sprint merger, paving the way towards a deal that will combine two of the country’s largest mobile carriers into one company with more than 80 million U.S. customers.
The department’s approval means both federal agencies overseeing the merger have given it their blessing, though a legal challenge by state attorneys general could still block the deal from going through.
The DOJ’s plan requires T-Mobile and Sprint to hand over assets including wireless spectrum and subscribers to Dish, a satellite television company that has been tapped to create a mobile network to compete with the merged company.
During a press conference announcing the deal, DOJ antitrust chief Makan Delrahim argued the remedies will help set up Dish as a strong competitor, calling it a potentially “disruptive force.”
But critics argue that Dish will not be a sufficient fourth wireless carrier despite the 5G promises.
The Hill’s Emily Birnbaum breaks down the DOJ decision and looks at what’s next.
ON TAP NEXT WEEK
Tuesday:
- Trump administration officials meet with Chinese counterparts in Shanghai to discuss a potential trade agreement.
- The Senate Banking Committee holds a hearing entitled “Examining Regulatory Frameworks for Digital Currencies and Blockchain,” 10 a.m.
- The Federal Reserve’s Federal Open Markets Committee (FOMC) begins its two-day July meeting.
Wednesday:
- The Federal Reserve announces its July interest rate decision at 2 p.m., followed by a press conference with Chairman Jerome Powell at 2:30 p.m.
GOOD TO KNOW
- Members of Congress on both sides of the aisle are introducing competing bills that aim to put a tax on carbon.
- South Bend, Ind., Mayor Pete ButtigiegPeter (Pete) Paul ButtigiegNerves on display as Democrats face do-or-die moment in Detroit Buttigieg momentum slows after swift rise Booker chases breakout moment by going after Biden MORE‘s (D) presidential campaign unveiled a new economic policy platform prioritizing worker rights and calling out tech giants over worker pay and benefits.
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