Donald Trump takes aim at US Fed as import drop lifts economy
By: Natalie Sherman (BBC News)
Wait, what?? A sharp drop in imports boosted the US economy? And how can this be?
S E E D E D C O N T E N T
A sharp drop in imports triggered by President Donald Trump's tariff policy helped boost US economic growth between April and June, according to the latest figures.
The world's largest economy expanded at an annual pace of 3% after shrinking in the first three months of the year, the Commerce Department said.
The bigger-than-expected rebound reflected swings in trade after businesses rushed to get goods into the US ahead of Trump's taxes and is not necessarily an indication of the health of the wider economy.
Nevertheless, the US president used the data to take aim at Jerome Powell, chair of America's central bank, ahead of a decision on interest rates later on Wednesday.
Using his "Mr Too Late" nickname for Federal Reserve chair Powell, Trump wrote on social media that the economic figure was "WAY BETTER THAN EXPECTED! 'Too Late' MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!".
The US Fed typically lowers interest rates when the economy is struggling and raises them if inflation, which measures the pace of price growth, rises too quickly.
The bank has been hesitant to act one way or another this year, saying it wants to see how tariffs and other new policies, including tax cuts, will affect the economy.
Recent data showed that the rate of inflation eased to 2.1% in the three months to June, from 3.7% between January and March.
Some analysts said the rebound in economic growth between April and June was likely to bolster arguments that the bank can afford to wait.
Bernard Yaros, lead US economist at Oxford Economics, said: "The economy's resilience will allow the Federal Reserve to hold still and assess the unfolding tariff impact on consumer prices before pivoting to interest rates cuts in December."
Many of the details of the Wednesday's report were consistent with an economy that is cooling but not in serious distress.
Consumer spending increased 1.4%, up from 0.5% between January and March but it represented much slower growth than last year.
Business investment eased and federal spending also dropped as areas outside of defence cut back.
A separate gauge that tracks consumer spending and investment slowed from 1.9% to 1.2%, the Commerce Department said.
Some economists have argued that this measure is a more helpful indicator, given the fluctuations in trade.
"Forget about the headline number," Jim Thorne, chief market strategist for Wellington-Altus Private Wealth told the BBC's Opening Bell. "The underlying data is suggesting an economy that is losing momentum."
Though he added: "The good news is that price pressures are starting to alleviate."
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Trump defies conventional wisdom?
How can this be?? How is this not obvious?:
I have noted this several times on this site. There has been a surge in buying to acquire inventory in anticipation of price hikes and shortages due to tariffs.
I am part of an initiative building a resort rental facility and we have purchased TVs, aluminum for railings, technology, etc. well before we needed them for this very reason. Businesses that depend on tariffed products do this to buy some buffer (and time to find alternate suppliers) in light of Trump's ever-changing policies.
The data does not support that contention. The drop in shipping container and port traffic began last April.
The data shows there was a spike in March but that disappeared by April. The most recent data isn't shown.
The spike of imports shows up in the Trade Balance chart I posted, too. Those increased inventories to avoid tariffs would have been accounted as investments in computing GDP. The spike in imports to build inventories also increased need for warehousing; rented space would contribute to GDP as service purchases. So, the increased inventories wouldn't have depressed GDP as much as suggested. Plus there was an increase in consumer spending to lock in lower prices before tariffs went into effect, too.
There was a 10% decline in international travel during Q1 that has been attributed to both tariffs and changes to immigration policy. The sharp decline in illegal border crossings may also have been a factor. The cuts in government spending also contributed to the weaker Q1 GDP.
The spike in imports wasn't the only thing going on with the economy during Q1. Citing the spike in imports doesn't tell the whole story of an economy in transition because of Trump's policy changes.
I do agree that we're not likely to get a clear picture of the impact of tariffs until the Christmas shopping season.