With better data, the Federal Reserve might have increased short-term interest rates at its September meeting. Chief US economist for Deutsche Bank Securities Inc.
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The biggest factor for the shortfall in GDP growth last quarter was that businesses reduced their restocking by the most since 2011. Growth is likely to average around 2% in the third and fourth quarters, the latest MarketWatch estimates show. The median projection was for a 2.5% increase for the second quarter.
That is, until the quarter’s growth metrics were published Friday by the Bureau of Economic Analysis. Personal-consumption growth in the second quarter jumped to 4.2% from 1.5%, showing that spending remained an important driver of economic growth. The figure was well below the 2.6% growth economists surveyed by The Wall Street Journal had forecast. It would be the slowest pace since the recession ended. The first half of this year was good.
Residential investment, which generally has benefited from the solid housing recovery, fell 6.1% after posting healthy gains in previous quarters.
The pattern of upward revisions to first-quarter data was broken this year, with the growth rate in the first three months of 2016 revised down to 0.8 percent from a prior estimate of 1.1 percent, Thursday report also showed. That increased 2.4%, double the rate of overall GDP, and would normally indicate a deeper use of inventory.
But nonresidential fixed investment, a measure of business spending, dropped at a 2.2% pace. Of concern, however, is that the economy has expanded at about half that pace over the past 12 months.
America’s economy didn’t bounce back in the spring after a sluggish winter. The new report revised Q1 GDI from +2.9% to +0.9%, which might make the argument that we should stick with GDP after all.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) referenced OMB’s projection in a statement today about the second-quarter figures.
Jason Furman, chairman of the president’s Council of Economic Advisers, said the report “underscores that there is more work to do” and said the Obama administration would keep pursuing policies to strengthen growth and boost living standards.
“In the past, those developments have even led to recessions, but given that potential growth is slower these days and that other headwinds occurred at the same time, one may actually be tempted to highlight the economy’s resilience”.
Looking at the whole of 2015, the United States economy grew 2.6 per cent compared with the previous year – higher than the 2.4 per cent as previously estimated.
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.
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The economy appeared to be back on track after the Labor Department said earlier this month that employers added a booming 287,000 jobs in June after a scant 11,000 were created in May.
