Tepid U.S. GDP for 2Q

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U.S. economic growth was lower than expected this spring with cautious businesses largely offsetting more robust consumer spending. Gross domestic product (GDP) grew at a seasonally adjusted annual rate of 1.2 percent in the second quarter, the Commerce Department said. The figure was well below the 2.6 percent growth economists expected. In the first quarter, GDP advanced at a downwardly revised 0.8 percent pace. The first quarter was previously seen as increasing 1.1% from the prior period.

The US economy has grown at less than a 2 percent pace for three straight quarters. The average annual growth rate during the current business cycle remains the weakest of any expansion since at least 1949.

Annual revisions, also released today, did show the economy expanded 2.6 percent in 2015 from 2014, marking the best yearly gain since 2006.

In the second quarter, consumer spending rose strongly. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2 percent rate, the best gain since late 2014. Outlays on goods advanced 6.8 percent. Spending on services climbed 3 percent.

Inventories. U.S. companies ran down their stockpiles for the fifth consecutive quarter, creating a big drag on headline GDP in the second quarter. The change in private inventories subtracted 1.16 percentage points from GDP. Government spending also lopped 0.16 percentage point off of GDP as federal, state and local governments trimmed their outlays in the second quarter.

Impacts. The tepid growth could make the Federal Reserve cautious as to whether the economy is strong enough to absorb higher interest rates later this year.

The anemic growth could also have election-year impacts as the status-quo candidate, Hillary Clinton, will have to defend the cool U.S. economy more than challenger Donald Trump.

Here is how one reader summed it up: “I was back in my hometown two weeks ago. Things just aren’t good. We’re stagnant. We have no energy. No will to succeed. I recognize Trump is a risk. But we need something different. There is a large swath of folks on both sides that will vote for Trump. They won’t tell you they are and they won’t tell you they did. But the evening of November 8th will reveal.”

NOTE: This column is copyrighted material; therefore reproduction or retransmission is prohibited under U.S. copyright laws.