October 20, 2019 / 8:56 PM / 2 months ago

CORRECTED-U.S. business investment much weaker in Q2 than previously estimated

 (In Sept. 26 story, corrects GDP time period in paragraph 6,
clarifies historicals in paragraphs 6 and 13)
    By Lucia Mutikani
    WASHINGTON, Sept 26 (Reuters) - U.S. business investment
contracted more sharply than previously estimated in the second
quarter and corporate profit growth was tepid, casting a shadow
on the economy, which is being stalked by  financial market
fears of a recession.
    Business investment declined at a 1.0% annualized rate last
quarter, the government said in its third reading of
second-quarter GDP on Thursday. That was the steepest decline
since the fourth quarter of 2015. Business investment was
previously estimated to have declined at a 0.6% pace. 
    It was pulled down by an 11.1% pace of decline in spending
on structures, which reflected drops in the categories of
commercial and healthcare, and mining exploration, shafts and
    After-tax profits without inventory valuation and capital
consumption adjustment, which correspond to S&P 500 profits,
increased at a downwardly revised 3.3% rate. Profits were
previously reported to have advanced at a 4.8% rate in the
second quarter.
    Weak business spending and tepid profit growth could raise
doubts on consumers' ability to continue driving the economy.
    Gross domestic product increased at an unrevised 2.0% rate
in the second quarter as the strongest consumer spending in
1-1/2 years offset weak exports and a slower pace of inventory
investment. The economy grew at a 3.1% rate in the January-March
quarter. It expanded 2.6% in the first half of the year.
    When measured from the income side, the U.S. economy grew at
a 1.8% rate in the second quarter. Gross domestic income (GDI)
was previously reported to have increased at a 2.1% pace in the 
April-June quarter. It rose at 3.2% rate in the first quarter. 
    The average of GDP and GDI, also referred to as gross
domestic output and considered a better measure of economic
activity, rose at a 1.9% rate last quarter, rather than the 2.1%
pace estimated last month. That was a slowdowng from a 3.2% pace
of growth in the first three months of the year.
    The Trump administration's nearly 15-month trade war with
China is threatening the longest economic expansion on record,
now in its 11th year. The trade war has weighed on manufacturing
and business investment, and stoked fears in the financial
market that a recession was looming.
    Federal Reserve Chair Jerome Powell said last week
policymakers "expect the economy to continue to expand at a
moderate rate," but reiterated that "weakness in global growth
and trade policy uncertainty have weighed on the economy and
pose ongoing risks." 
    The U.S. central bank cut interest rates again last
Wednesday after lowering borrowing costs in July for the first
time since 2008.
    The economy is largely losing speed as the stimulus from the
White House's $1.5 trillion tax-cut package and a government
spending blitz fades. Economists are forecasting growth this
year around 2.5%, below the Trump administration's 3% target.
    Growth in consumer spending, which accounts for more than
two-thirds of U.S. economic activity, surged at a 4.6% rate in
the second quarter, a pace last seen in late 2017. The last time
consumer spending grew faster was in the fourth quarter of 2014,
when it advanced 4.9%.
    Consumer spending is being driven by the lowest unemployment
rate in nearly 50 years. But a recent ebb in consumer confidence
amid concerns about duties on Chinese consumer goods, which came
into effect in September, could slow spending. Additional
tariffs are on the way.
    The trade deficit widened to $980.7 billion in the second
quarter instead of $982.5 billion as reported last month. Trade
cut 0.68 percentage point from GDP growth last quarter rather
than 0.72 percentage point as previously reported.
    Growth in inventories was revised slightly up to a $69.4
billion rate in the second quarter from the previously estimated
$69.0 billion pace. Inventories sliced off 0.91 percentage point
from GDP growth last quarter as reported in August. The slowdown
in inventory accumulation reflects robust consumer spending.
    Government investment was raised as state and local
government spending was much strong than initially thought.
Spending on homebuilding contracted for a sixth straight
quarter, the longest such stretch since the Great Recession.

 (Reporting by Lucia Mutikani; Editing by Andrea Ricci
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