Individuals spent 4.2% more in the second quarter than they did a year ago. While a strong labor market and cheap gasoline prices and bolstering households, businesses are feeling the pressure of weaker corporate profits and a strong dollar that makes foreign goods cheaper within the USA – a challenge to the market share of American producers. The growth estimate is the 1st of 3 for the Quarter, with the other releases scheduled for August and September when more information becomes available.
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Lackluster growth could be a concern to Federal Reserve officials considering whether the economy is strong enough to absorb higher interest rates later this year. It does mean that we may have to wait a little longer for interest rates to rise but, if things remain-at the very least-consistent here in the USA, it is only going to be a matter of time.
Analyst expectations had been wrongfooted by weaker-than-expected performance in businesses’ fixed investments and private domestic investments, according to Michal Gapen of Barclays Research.
The consumer gain will be offset somewhat by a slowdown by stockpiling by businesses – an area of the economy that has held back growth the past three quarters. “The good news is that the change in inventories will likely be positive in the third quarter, which will add to growth”.
Behravesh predicted that GDP will accelerate to an annual growth rate of around 2.5 percent in the second half of the year.
Growth from 2012 to 2015 was revised up marginally, to 2.2% from 2.1%, matching the modest pace that has prevailed throughout the seven-year-old recovery. It would be the slowest pace since the recession ended.
However, some experts believe the drag from inventories is beginning to wear off and shouldn’t affect the economy much more for the rest of the year. Job growth has slowed down this year after two years of historic gains.
Gross domestic product grew at a seasonally adjusted annual rate of 1.2% in the second quarter, the Commerce Department said Friday. Fixed investment decreased 3.2 percent at the annual rate in the second quarter, falling for the third straight month. While growth is expected to rebound in the second half, expansion for 2016 will probably fall short of 2 percent. But the government sector balanced that with a 0.2% contraction, reflecting weakness at both the federal and state and local levels.
Brexit was hardly worth noting because it was unexpected and took place in the final days of the second quarter. The inflation rate by this measure has averaged just 1.6 percent over the last five years. But economists said this likely reflected a warmer winter, which brought forward building activity that normally would have occurred in spring.
The latest GDP figures are the first estimate of growth for the April-to-June quarter, and a second reading based on more data will be announced on 26 August.
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Jason Furman, chairman of the Council of Economic Advisers, also commented on the GDP number in a blog post.
