The US economy churned out a lacklustre performance in the second quarter as strong consumer spending was countered by a slide in housebuilding.
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Though we may see a pick-up in the other areas, two major pillars of consumer spending-wages and salaries-came in at the weakest level in three years. The jump in both areas is likely to be at least partially reversed in future quarters, slowing growth.
Every year, the department’s Bureau of Economic Analysis revises several years of data measuring gross domestic product, the broadest gauge of the economy.
With Friday’s report, the US Commerce Department also issued its annual revisions, updating the data back through Y 2013, the Q-1 reading was revised down from a previously reported 1.1% gain.
Trade added 0.23 percentage points to growth. The gain in household purchases in the second quarter, among the biggest of the current expansion, was the lone bright spot in an otherwise dreary report.
“We think they are unlikely to set monetary policy according to wild swings in inventory, but rather labor market dynamics and final demand, although the doves will cite these numbers as a reason for more “wait and see”, said Paul Mortimer-Lee, chief North America economist at BNP Paribas in NY. “It means we must have some handoff of that work from consumers to business investment in particular”.
This is the third consecutive quarter that growth is close to 1%, demonstrating that the growth trend of the American economy seems on a path of dropping off significantly from its assumed 2% growth trend, according to The Conference Board. Businesses have struggled for more than a year to get their stockpiles more in line with sales. At the same time, businesses refrained from restocking their inventories by the sharpest amount since the first quarter of 2014. Growth also was revised down for the fourth quarter of 2015 to 0.9% from 1.4%.
Corporate spending on equipment, structures and intellectual property, decreased an annualized 2.2 percent after a 3.4 percent fall in the first quarter. States and municipalities also cut back.
Business investment declined at a 9.7% annual rate in the second quarter, much worse than the 3.3% drop off in the previous quarter. The GDPNow tool had only been off by an average of 0.6 percentage points over the last 19 quarters, during which time it actually tended to overshoot the government’s official estimate. Of concern, however, is that the economy has expanded at about half that pace over the past 12 months. The year started at a weaker note than previously expected and the uncertain global markets also kept investments slow. That was the category’s fifth-straight decline and the largest drag from inventories in two years.
Economists expect that the nation added a solid 175,000 net new jobs last month.
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Though some economists said Friday that the U.S.is due for a pick-up in the second half of the year, the recent weakness could dampen sentiment about the country’s course and push Democratic nominee Hillary Clinton to take a more critical tone about the economy under President Obama.
