In this Thursday, May 19, 2016, photo, passers-by walk near the construction site a high-rise building in Boston. Businesses pared their stockpiling and investment through the spring.
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In its defense, the Federal Reserve wasn’t wrong to be compelled by a high degree of consumer spending last quarter, which drives about 2/3 of the US economy.
Lackluster growth could influence voters weighing the economic track record during Barack Obama’s administration before electing a new president in November and focus more attention on the heath of the labor market.
US real gross domestic product grew at an annual rate of 1.2% in the second quarter, according to an “advance” estimate of GDP growth by the US Commerce Department. That was far weaker than the forecasts of most analysts, who had expected growth of twice that pace in a bounce-back from a slump at the start of the year.
“I don’t think US consumers can continue to do the kind of heavy lifting that they have done”, said Millan Mulraine, deputy head of US research and strategy for TD Securities USA LLC in NY. Ashworth predicts only one interest rate increase this year, in December. In the first three months of the year, in data also revised Friday, the economy grew just 0.8 percent. Firms’ meager additions to inventories have been a drag on growth for five straight quarters.
Additionally, residential investment, which saw a 6.1% annualized drop in 2Q, after several solid quarters of double-digit expansion, could also see a reversal in the third quarter.
A sharp slowing of the rate of inventory accumulation led to a lower than expected 1.2 percent GDP growth rate in the second quarter. That left the year-over-year growth rate at 1.2 percent, the weakest in nearly three years.
Tepid growth between the months of April and June was particularly unsettling because it extended a period in which the economy appears to be gradually shifting into a lower speed.
To that point, Larry Shover, chief investment strategist at Solutions Funds Group, said without an unexpected economic event, the factors that have boosted consumers in the first half of the year should continue to serve as a buoy through the remainder of 2016. Consumer spending increased by 4.2%, the fastest pace since the fourth quarter of 2014.
Business spending on equipment contracted for a third consecutive quarter, the longest stretch since the 2007 to 2009 recession, though the pace of decline slowed. Excluding the decline in non-conventional oil extraction, real GDP still moved backwards in May by 0.1 per cent.
America’s economy didn’t bounce back in the spring after a sluggish winter. The bureau added that imports, which are a subtraction in the calculation of GDP, decreased. The June reading was less than the 0.2 percent gain projected in the Bloomberg survey of economists ahead of final figures to be issued August 9.
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“It is incredible how resilient the USA economy has been in the face of all these uncertainties and shocks”, said Zandi.
