Softer capital spending at the end of the summer shows the U.S. economy may be slowing more than expected from this spring’s four-year high as President Trump escalates a trade war.
Orders for capital goods excluding aircraft slipped 0.5 percent in August, and shipments climbed just 0.1 percent, both of which were worse than Wall Street’s consensus, Goldman Sachs economist Jan Hatzius wrote in a report on Thursday. While 4.5 percent growth in overall orders topped expectations, the details “show signs that underlying demand is moderating,” said Jonathan Millar of British lender Barclays Plc.
Investment bank Morgan Stanley now predicts 2.7 percent economic growth in the three months through September, down from a previous projection of 3.4 percent, economist Ellen Zentner wrote in a report. That compares with the most recent estimate of 4.2 percent growth in the three months through June, released Thursday, that reflected a drop in imports and increases in government spending from the start of the year.
Just a day earlier, the Federal Reserve’s monetary policy committee cited strong growth as it raised interest rates for the eighth time since they were cut to nearly zero during the 2008 financial crisis, to a range of 2 to 2.25 percent.
Chairman Jerome Powell said gross domestic product for all of 2018 may grow as much as 3.1 percent from last year, despite rising concern from business about Trump’s protectionist trade policies.
“We have a really solid economy on our hands here,” Powell said in a news conference. “If we get a sense that the economy is reacting badly, then we’ll certainly react to that.”
The Fed chairman, appointed by Trump to succeed Janet Yellen, noted business worries but said the harm they fear hasn’t yet materialized. Both corporate executives and private economists have warned that the White House’s antagonism of allies such as Canada as well as competitors such as China may undermine the benefits of last year’s tax cuts, curbing growth in the remainder of 2018.
In addition to double-digit tariffs on $250 billion of Chinese imports, Trump has threatened duties on as much as $267 billion more, accompanied by 25 percent levies on automobiles and vehicle parts, as he tries to shrink a trade imbalance that he says is bad for the U.S.
Auto industry executives told the Senate Finance Committee on Wednesday that tariffs would hurt their profits and raise prices for buyers. Consumer businesses from cosmetics firm Estee Lauder to electronics giant Best Buy, which previously benefited from shoppers loosening their purse strings, fear the same.
