Q2 GDP = 1.2%

This morning, the government reported that the U.S. economy grew by just 1.2% last quarter. That’s not a good performance. It was less than half of expectations.

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% rate, the best gain since late 2014. Outlays on goods advanced 6.8%. Spending on services climbed 3%.

But nonresidential fixed investment, a measure of business spending, declined at a 2.2% pace, the third straight quarterly drop. Companies spent less on buildings and equipment.

Firms also pared back inventories sharply. The change in private inventories subtracted 1.16 percentage points from overall growth. That was the category’s fifth-straight decline and the largest drag from inventories in two years.

Weak business investment could suggest firms don’t have confidence in the global economy. Manufacturers especially have been challenged by a strong dollar, which makes U.S.-made goods more expensive overseas. The energy industry has also been constrained with relatively low oil and natural gas prices curtailing investments in mining and wells.

The economy has grown by less than 2.7% annualized for the last seven quarters in a row. In the seven quarters prior to that, it topped 2.7% in five quarters.

Posted by Eddy Elfenbein on July 29th, 2016 at 11:27 am

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