“However, consumer spending grew strongly at 4.2%, and, in contrast to the pattern in recent years, net exports also added to GDP”.
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The world’s biggest developed economy expanded at an annualised pace of 1.2 per cent in the three months ended June, from 0.8 per cent in the first quarter, the Bureau of Economic Analysis said. That pullback in stockpiling subtracted 1.2 percentage points from annualized growth in the April-June quarter – more than economists had expected.
While less inventory building likely weighed on growth, the faster companies get stockpiles aligned with sales, the quicker factory production can recover. Consumption spending grew by $190.1 billion during the second quarter of 2016, compared to $59.2 billion during the first quarter.
Behravesh predicted that GDP will accelerate to an annual growth rate of around 2.5 percent in the second half of the year.
“Growth in the first two quarters of 2016 is averaging 1%”, points out Peter Boockvar of the Lindsey Group.
The report raised risk of the decision of the future rate hike.
“Once the impact of a downward inventory adjustment is considered, the underlying pace of growth looks healthier than the headline number”, said Chris Williamson, chief economist at IHS Markit in London.
Excluding inventories, GDP growth rose at a 2.4 percent rate and domestic demand increased at a 2.7 percent pace. This drop will nearly certainly be reversed in the next two quarters, as the sector remains a modest positive for the economy.
“Businesses will need to add to their stocks in the second half of this year”, said Gus Faucher, deputy chief economist at PNC Financial Services. “It means we must have some handoff of that work from consumers to business investment in particular”. This is a sign of leaner investing and more conservative business decisions. At the same time, businesses refrained from restocking their inventories by the sharpest amount since the first quarter of 2014.
Government spending also shrank last quarter, declining 0.9 percent, the most in more than two years as outlays for the military fell.
Also, this was the government’s initial estimate of growth in the quarter. Fixed investment decreased 3.2 percent at the annual rate in the second quarter, falling for the third straight month.
Even though job growth was patchy in the three-month period – with May’s reading coming in at the slowest pace since 2010 – modest wage growth and low gasoline prices have been a boon to consumers.
Just how long has it been since we’ve seen decent quarterly growth?
The economy this year has withstood a host of problems, from market turbulence caused by fears over how an economic slowdown in China could weaken the global economy to a nosedive triggered by Britain’s vote to leave the European Union.
Fed policy makers, who left interest rates unchanged this week, said risks to the United States outlook have “diminished” and the labor market is getting tighter, suggesting conditions are turning more favourable for an increase in borrowing costs.
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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.
