The government now tells us that the economy managed to stay above water at the beginning of the year but wasn’t quite as strong over the past couple of years as we’d previously been told.
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Economists had forecast the U.S. economy grew at a seasonally adjusted annual rate of 2.6 percent in the second quarter, according to analysts polled by Thomson Reuters.
The latest figures repeat a common pattern in recent years: a slump at the start of the year, followed by a bounce back in the spring and summer. It’s been the slowest recovery since World War II. Yellen has said that officials expected to start the move later this year.
Economists, however, are hopeful about the rest of 2015. In the first quarter, real GDP increased 0.6 percent. In both quarters, the biggest subtraction came from lower federal defense spending.
“Today’s 2Q GDP update will weigh heavily on whether the Fed hikes in September or if it will again delay”, said John Kicklighter, chief strategist at DailyFX, in a note.
The Fed also needs to be convinced that price gains will eventually rise toward its target of 2 per cent a year. Most of the downward revision was concentrated in the first two years subject to revision-2012 and 2013-while real GDP growth over the four quarters of 2014 was revised up, from 2.4 percent to 2.5 percent.
Naroff said economic data over the next two months will determine the Fed’s timing. With the labor dispute now settled, exports rose at a 5.3 percent rate in the second quarter, still leaving them below their level from the fourth quarter of 2014.
The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data. The economy expanded at an average annual rate of 2% during that period, down from an earlier estimate of 2.3%.
But the 2.3 percent growth just announced is down from the 4.6 percent growth experienced in the second quarter of 2014.
And that’s important, because sustained economic growth is a function of private-sector investment. The new revision shows economic activity climbed above 0 but not all the way to 1%.
Trade also served as a small boost to overall growth.
A previous estimate of a contraction in the first quarter was wiped out by statisticians. Core prices, which exclude food and energy costs, rose 1.8 per cent.
The composition of growth is changing, at least in part because of the drop in oil prices and rising value of the dollar.
Outlays for home construction also jumped 6.6% as tight housing supplies and resurgent sales coaxed builders into expanding inventories.
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These contributions to the increase in real GDP were partly offset by decreases in federal government spending, inventory investment, and business investment.
