Real (inflation-adjusted) GDP growth rose at a 2.1% annual rate in the advance estimate for 2Q19, a bit better than the median forecast (+1.8%), but growth was concentrated in just two components, consumer spending and government. Everything else was down. GDP growth is rarely even, but the 2Q19 component split raises some important questions.

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Personal Consumption Expenditures (consumer spending) account for 68% of Gross Domestic Product. Spending rose at a strong 4.3% annual pace in the second quarter. However, that reflected a rebound from two soft quarters (+1.4% in 4Q18 and +1.1% in 1Q19 – the 4Q18 figure was revised down from +2.5%). Consumer spending rose 2.6% year-over-year in 2Q19, a respectably strong pace, but much less robust than the 4.3% quarterly figure would suggest. Household sector fundamentals remain in good shape. Job growth has slowed this year, but the trend remains beyond a long-term sustainable pace (that is, more than enough to absorb new entrants into the job market). Wage growth has generally picked up, but much less than one would expect given a sub-4% unemployment rate.

As Fed Chair Powell noted in his July 10 monetary policy testimony to Congress, even with the low unemployment rate, there appears to be a lot more slack in the labor market. Moreover, Powell has been particularly impressed by the more recent job gains in areas that had been largely bypassed by the economic recovery.

Business fixed investment fell at a 0.6% annual rate in 2Q19, reflecting a 10.6% decline in business structures (split between commercial, manufacturing, and mining, which includes energy exploration) and a 9.2% drop in transportation equipment (probably Boeing). Is this a slow patch or the start of a prolonged decline? Tariffs and softer global growth have been a factor, but we may also be seeing a pullback from the enthusiasm that followed the corporate tax cut. Business sentiment has deteriorated. Removing trade policy uncertainty would help to shore up business confidence, but the prospects for a near-term resolution seem limited.