“That could prevent economic growth from breaking out”. That hasn’t happened since 2009, as the USA was exiting its worst economic downturn since the Great Depression. The year-over-year growth rate cooled from 3.3 per cent in last year’s first quarter to 1.9 per cent in the final three months of 2015, rather than the previous downshift from 2.9 per cent to 2 per cent. The poor GDP number will dramatically raise the importance of next week’s employment report, to cross-check the GDP data.
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For example, Republican Ari Fleischer, a former spokesman for President George W. Bush, tweeted: “Want to know why Hillary could lose to Trump?” After Wednesday’s FOMC meeting where the committee said that the near term risks to the economy had diminished, the probability of a hike in September rose to 30%, according to the CME FedWatch tool the probability is now 12%. Oil industry-related spending should stabilize now that crude prices have started edging up, and the dollar has leveled off as well in recent months, bolstering exports, says economist Paul Ashworth of Capital Economics.
The advance GDP figures are based on incomplete information and often get revised as more data becomes available. They probably had the GDP data in front of their eyes.
Still, businesses remain cautious about the future, suggesting that many are anxious about the outlook overseas. Individuals spent 4.2% more in the second quarter than they did a year ago. Overall consumer spending, which includes goods and services, expanded by 4.2 percent in this report, and the category contributed 2.83 percentage points to headline growth.
So shopping is up too. Federal, state, and local spending declined in the quarter, but most of the drop was due to a 1.3 percentage drop in state and local spending.
“The more immediate concern of persistently weak business investment spending is that it could at some point translate into diminished hiring if not outright layoffs, which in turn would take the rug out from under USA consumers”, Richard Moody, chief economist at Regions Financial Corp.in Birmingham, Alabama, said in a research note. Businesses also bought less equipment. That could mean more jobs or longer hours for a lot of people, including factory workers, truck drivers, distribution-center workers, store-shelf stockers and so on.
The numbers released today represent the first estimate of growth for the quarter.
“The economy has grown at less than 2 percent pace for three straight quarters”, the Wall Street Journal wrote.
Investments in new equipment have now fallen in five of the last seven quarters, and spending on new structures has contracted in six of the last eight.
Following the conclusion of its meeting on Wednesday, the Federal Reserve said that USA economic activity was expanding at a “moderate rate”.
Keeping rates low will help consumers who need to borrow for cars, homes and other purchases. Maybe by November, the weak growth turns into a real recession.
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The U.S. economy grew at a faster pace in the second quarter, boosted by spending and exports. This contrasted with economists’ expectations for growth of 2.6% during the quarter.
