Updates to previously reported GDP figures from 2013 to 2015 unveiled on Friday showed upward revisions to the average first-quarter growth rate over that period, as well as to the third quarter, while the average second-quarter growth was somewhat weaker than previously reported.
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“The growth trend of the American economy seems on a path of dropping off significantly from its assumed 2% growth trend”, Conference Board economist Brian Schaitkin.
A surprisingly lackluster economy last quarter served as a reminder of how choppy the pace of growth has been since the Great Recession ended seven years ago. The July’s jobs report is due out next Friday.
The second quarter results were well below analysts’ expectations of 2.6 per cent growth and could temper the cautious optimism expressed at this week’s meeting of the US Federal Reserve. That might still happen, particularly if other indicators reflect healthier progress in the economy, but today’s GDP report would likely diminish that prospect, increasing the likelihood of the next rate hike to December or perhaps 2017.
Trade was a small positive, adding 0.23 percentage points to growth in the quarter. Current-dollar GDP increased 3.5%, or $155.9 billion, in the second quarter to a level of $18,437.6 billion. Spending on services climbed 3%.
Business spending on equipment contracted for a third consecutive quarter, the longest stretch since the 2007 to 2009 recession, though the pace of decline slowed. Companies spent less on buildings and equipment.
Private domestic investment was one of the largest negative contributors, subtracting a total of 1.7% from GDP growth, driven by slower growth in both fixed investment and private inventories.
However, companies were prudent regarding their investments, which dragged the economy down.
The good news is that the dollar is getting stronger and that the Fed is paying attention.
The monthly U.S.jobs report is also likely to attract attention next week along with reports on manufacturing activity, personal income and spending, and global trade. While growth is expected to rebound in the second half, expansion for 2016 will probably fall short of 2 percent.
Economists said the decline was payback after strong gains in the first quarter.
The figures came as part of a swath of updates to previously published numbers.
In a bit of a surprise, exports rose and imports fell. Last quarter there was a resilient performance, but businesses are still cautions.
The trajectory of the USA economy was little changed, however.
The faster growth compared to the first quarter reflected an acceleration in consumer spending, the upturn in exports, and smaller decreases in non-residential fixed investment and federal government spending.
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Excluding volatile food and energy prices, the core PCE price index increased 1.7 percent, while the index grew 2.1 percent in the first quarter. Those readings are only slightly below the Fed’s target of a 2% annual inflation rate.
