These are called “inventories” and too many unsold items can cause business owners to slow down purchases for future seasons.
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The U.S. economy grew at a sluggish pace in the spring, with robust consumer spending offset in part by a dip in new housing construction.
As such, consumer spending and net exports alone would have given us growth just over 3 percent.
Gross domestic product climbed at a 2.5 percent annualized rate in the second quarter after an uninspiring 1.1 percent pace in the first three months of the year, according to the Bloomberg survey median ahead of Friday’s report. The Fed last hiked in December 2015, which was the first move after eight years of keeping the overnight rate near zero.
Last quarter there was a resilient performance, but businesses are still cautions. But businesses cut spending for the third straight quarter, possibly reflecting uncertainties about the USA election and the United Kingdom vote to leave the European Union. Most of this growth was on the goods side, which grew at a 6.8 percent annual rate, while consumption of services grew at a more modest 3.0 percent rate. That followed a revised 1.6 percent increase from January through March. It would be the slowest pace since the recession ended.
Weak business investment could suggest firms don’t have confidence in the global economy.
And Ralph Benko, senior economic advisor to American Principles Project, a conservative think tank, said in a statement that “the new economic numbers can not possibly represent good news for Team Clinton”.
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. This contrasted with economists’ expectations for growth of 2.6% during the quarter.
The surprisingly weak GDP reading in the spring-after tepid 0.8% growth in the first-quarter-raises fresh questions about whether the economy will gain momentum in the second half of the year.
Friday’s report also showed that in the second quarter, GDP expanded at a 1.2 per cent rate from the same period a year earlier. Nonresidential spending on structures (down 7.9 percent) and equipment (down 3.5 percent) continued to decline, with the former lower in six of the past eight months. Analysts say these reductions may finally be tapering off, allowing investment to start rising again in the second half.
Government spending also shrank last quarter, declining 0.9 percent, the most in more than two years as outlays for the military fell. It said the “near-term risks to the economic outlook have diminished”.
Stripping out these pieces of the GDP calculation gives economists a better sense of domestic demand.
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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.
