Q-2 US GDP Missed Industry Survey, Economy at Risk

Q-2 US GDP Missed Industry Survey, Economy at Risk

Q-2 US GDP Missed Industry Survey, Economy at Risk

The US economy expanded less than forecast in Q-2 after a weak start to the year

GDP rose at a 1.2% annualized rate after a grim 0.8% advance in Q-1, US Commerce Department figures showed Friday. The median forecast of economists surveyed by called for an optimistic 2.5% Q-2 increase.

The report raises the risk to the outlook at a time US Fed policy makers are looking for  improvement, Where consumers were just OK last Quarter, businesses were cautious, cutting back on investment and aggressively reducing stockpiles due to weak global markets, heightened uncertainty, and the lingering drag from a strong USD.

Private fixed investment, which includes residential and business spending, dropped at a 3.2% pace in Q-2, the most in 7 years.

With Friday’s report, the US Commerce Department also issued its annual revisions, updating the data back through Y 2013, the Q-1 reading was revised down from a previously reported 1.1% gain.

Economists’ Q-2 estimates for GDP, or the value of all goods and services produced, ranged from 1 to 3.2%. The growth estimate is the 1st of 3 for the Quarter, with the other releases scheduled for August and September when more information becomes available.

Inventories were reduced by $8.1-B in Q-2, the most since Q-3 of Y 2011 and subtracting 1.16% from the economy. At the same time, leaner inventories could set the stage for a pickup in production later this year should demand hold up.

Household consumption, which accounts for about 70% of the economy, grew at a 4.2% annualized rate, the biggest jump since the end of Y 2014 and adding 2.83% to growth. That followed a revised 1.6% increase from January through March.

The Bloomberg survey median forecast for Q-2 was 4.4%.

Corporate spending on equipment, structures and intellectual property, decreased an annualized 2.2% after a 3.4% fall in Q-1. Outlays for equipment dropped for the 4th Q in the last 5.

Spending on structures  have increased in only 1 Q since the end of Y 2014.

Inventories and the trade gap are 2 of the most volatile components in GDP calculations.

To get a better sense of demand in the US, economists look at final sales to domestic purchasers, or GDP excluding inventories and net exports. That measure increased 2.1% last Quarter after a 1.2% gain.

Also holding back economic growth in Q-2 was a decrease in residential investment, which fell at a 6.1% pace. That was the most since Q-3 of Y 2010 and marked the 1st decrease in 2 years.

Government spending also shrank last Quarter, declining 0.9%, the most in more than 2 years as outlays for the military fell. States and municipalities also cut back.

The GDP report also showed price pressures remain limited.

A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.7% annualized pace compared with 2.1% in the prior Quarter.

Fed policy makers, who left interest rates unchanged this week, said risks to the US outlook have “diminished” and the labor market is getting tighter, suggesting conditions are turning more favorable for an increase in borrowing costs.

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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