The Commerce Department said Friday that the economy expanded at an annual rate of 1.2 percent in the second quarter, up slightly from 0.8 percent during the first three months of the year.
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Economists had expected GDP to jump by 2.6 percent compared to the 1.1 percent growth that had been reported for the previous quarter.
Though the inventory drawdown weighed on GDP growth, that is likely to provide a boost to output in the coming quarters as businesses order merchandise to restock depleted warehouses. Indeed, manufacturers and other business leaders continue to be quite cautious, and as a result, they are holding back on capital spending and hiring, waiting for better signs of traction in the economy. So, growth was weak but due to falls in “bad growth”, inventories and government spending, while “good growth”, consumer spending was solid.
The bureau will release its second estimate for the second quarter of 2016 on August 26.
The GDP report and poor earnings from oil majors Exxon and Chevron briefly weighed on USA stocks, which later rose after online retailer Amazon.com gave an upbeat forecast for the current quarter.
Nominal spending on health care grew at a 5.4 percent annual rate, exceeding the 3.5 percent growth rate of nominal GDP.
Households led the charge last quarter, with spending growth projected to match the hardiest advance in more than a decade.
Those numbers act as a counterweight to the declining jobless rate, which is down to 4.9 percent. Chief US economist for Deutsche Bank Securities Inc.
So what does that mean for the rest of us?
The decline in company inventories shaved 1.2 percentage points from GDP as business spending was well down on the previous quarter.
While the BoJ announced plans to double its purchases of exchange-traded funds, investors had been expecting more substantial measures. This follows an increase of 0.8% in the first quarter.
Economists believe residual seasonality has been most prevalent in first-quarter GDP data, with growth underperforming in five of the last six years since the recovery started in mid-2009. States and municipalities also cut back. Business spending on equipment declined by 3.5% after falling 9.5% in the first quarter.
Last quarter, the GDP grew at an upwardly revised annual rate of 0.8%. But most see only one modest Fed rate hike this year, which would be unlikely to slow the economy.
After stabilizing in February, markets went into a second nosedive in June after Britain voted to leave the European Union, an unexpected outcome that raised fears that the already weak global economy might slide further.
Job growth had rebounded strongly in June to 287,000 after the economy added just 11,000 net new positions in May.
Economists said the decline was payback after strong gains in the first quarter. That could begin in the second half of the year just as steadier oil prices bring relief to the energy sector and the downward pressure from the dollar’s 2015 surge diminishes.
Those figures could be a concern to Federal Reserve officials who this week signaled diminishing risks for the economy could support an interest-rate increase later this year.
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Information for this article was contributed by Martin Crutsinger of The Associated Press and by Shobhana Chandra, Michelle Jamrisko, Carlos Torres and Lisa Du of Bloomberg News.
