The saving rate fell in the second quarter, to 4.8 per cent from 5.2 per cent, while Americans spent more on long-lasting products, including cars. “GDP growth north of 2.5 percent is sufficient to reduce the slack in the broader economy”.
The central bank left interest rates unchanged Wednesday. In recent years, in particular, the government appears to have underestimated growth in the January-March quarter.
“It was a little disappointing there wasn’t a bigger bounce back from the first quarter; 0.6% is still extremely low”, said Gad Levanon, an economist at the Conference Board.
The latest results mirror a familiar pattern over the last few years.
The uneven momentum has contributed to overall tepid growth since the recession officially ended in June 2009.
And slower business stockpiling subtracted slightly from growth after adding to it in the first three months of the year.
Economists, however, are hopeful about the rest of 2015. The short-term interest rate has been kept record low since December 2008. “This will provide the necessary cover for the Fed to raise rates later this year, though the pace of tightening will be ‘gradual.'” A firming housing market is also expected to have supported the economy in the second quarter, as did government spending. But it did not provide a clear signal for the rate hike timetable. For 2016, Zandi is forecasting growth of 3.1 percent, which would be the best since 2005.
While currency remains a huge issue for exporters today, the second quarter export growth was up 5.3% versus a drop of about 6% in the first quarter.
“Weaker consumer spending is consistent with the widespread popular sentiment that the economic recovery was foundering”, notes Nariman Behravesh, chief economist at IHS. Consumption represents about two thirds of economic activity.
In the government’s newly revised figures for 2012-2014, the economy expanded at just a 2 percent annual rate, down from a previous estimate of 2.3 percent. The rise in real GDP, at a 2.3% annual rate in Q2, was marginally below the 2.5% consensus.
On Thursday, as part of its annual revisions of data, the department’s Bureau of Economic Analysis said it was introducing new seasonal adjustment methods for key categories such as federal defense spending and consumer spending on services. “The Fed is going to be making policy based on how the U.S. economy is performing”.
And that’s important, because sustained economic growth is a function of private-sector investment.
GDP highlights: The second-quarter increase in real GDP mainly reflected an increase in consumer spending. During the quarter, the index increased by 1.4%, recovering from a 1.6% decline in the first quarter.
LaVorgna also indicates that slower potential growth cuts both ways for the bond market.
The first quarter, marred by severe winter weather and West Coast port strikes, was not as weak as previously estimated. Core prices, which exclude food and energy costs, rose 1.8 per cent.
Outlays for home construction also jumped 6.6% as tight housing supplies and resurgent sales coaxed builders into expanding inventories. Growing personal spending, exports, state and local spending, and home-buying drove growth in the month.
