Economic growth probably slowed sharply last spring, but don’t panic — the decade-long expansion has lost some momentum, but there’s little reason to think it is about to stall out.
The Commerce Department will release its preliminary estimate of second-quarter economic growth at 8:30 a.m. Friday. Forecasters surveyed by MarketWatch expect the report to show that gross domestic product, the broadest measure of goods and services produced in the economy, rose at a 1.9 percent annual rate in the three months ending in June. That would be a significant deceleration from the 3.1 percent growth rate in the first quarter, and it would be the weakest reading in more than two years.
But the big swings in the quarterly data are almost certainly exaggerated. The larger trend shows that the economy has cooled since last year, when tax cuts and government spending gave growth a temporary jolt. But the strong job market and robust consumer spending are keeping the recovery on track, even as trade tensions and a slowing global economy are threatening to knock it off course.
Here’s what to watch for in Friday’s report.
Consumers carry the economy.
Growth in the first quarter looked good on the surface, but the underlying details were much weaker. The pattern should reverse in the second quarter. Most economists expect the report to show that final demand — a measure of underlying growth that strips out some of the most volatile components — actually accelerated.
The biggest factor: consumer spending, which accounts for more than two-thirds of the American economy. Stock market volatility, a prolonged government shutdown and harsh winter weather all contributed to weak spending early in the year. But consumer spending roared back in the spring. Many forecasters estimate that those purchases rose 4 percent or more, which would make this the best quarter in years.
“The consumer is going to be the savior of the report,” said Dan North, chief economist at Euler Hermes North America, an insurance company.
Unfortunately, other parts of the economy look much weaker. Economists expect Friday’s report to show that business investment was weak in the second quarter. Manufacturers, in particular, have been battered by tariffs and slowing demand from overseas. If that continues, it could slow hiring or even lead to layoffs, which would hurt consumer spending as well.
Watch for revisions.
In addition to its estimate of second-quarter growth, the Commerce Department on Friday will also revise G.D.P. data back to 2014. Such updates, which take place every summer, incorporate new data from the Internal Revenue Service, the Census Bureau and other sources that weren’t available when initial estimates were released.
There’s pretty much no way to know what the revisions will show. They probably won’t change the overall picture, but they could alter some of the underlying trends — smoothing out some of the recent volatility, or perhaps making it look even more extreme. And they add uncertainty to estimates of the second quarter, since those forecasts are based on the soon-to-be-revised data.
The view from Washington.
Friday’s report is one of the last major pieces of economic data before next week’s Federal Reserve meeting, when policymakers are widely expected to cut interest rates to try to stimulate the economy.
Even a big surprise on Friday would be unlikely to change the Fed’s mind. But it could affect how policymakers think about the need for further cuts this year — something investors expect but Fed officials have yet to commit to.
There are also political implications. A weak report on Friday would make it far less likely that growth for the year will top 3 percent, as President Trump has promised. And it would undermine Republican arguments that the tax cuts they passed in 2017 have given the economy long-term momentum, rather than merely a short-term bump. A strong report, on the other hand, could bolster Mr. Trump’s case for re-election.
A historic milestone.
The second quarter of this year was also the 10th anniversary of the end of the Great Recession. Assuming another downturn hasn’t already begun, this is now the longest expansion on record.
There are some signs that the record run could be nearing its end. Some forecasting models, particularly those based on the market for government bonds, have been flashing warning signs, and surveys show that economists think the risk of a recession in 2020 has been gradually rising.
“Obviously, the headwinds are increasing,” said Joe Brusuelas, chief economist for RSM, a financial consulting firm. Europe is close to a recession or perhaps already in one. A trade deal with China looks to be months away at best. A flare-up in the trade war could be enough to cause a recession, he said.
On the other hand, this week’s budget deal between the Trump administration and Congress eased the risk of another government shutdown or a standoff over the debt ceiling. And if the United States and China were to reach a deal this fall, that could give the expansion a new life, Mr. Brusuelas said.