2Q Headline GDP Slows

The Bureau of Economic Analysis said gross domestic product grew by just 1.2 percent in the second quarter, well below market expectations

The BEA “advance” estimate is based on preliminary data; subsequent reports in August and September will reflect more complete data analysis.

In the first quarter, GDP increased by 0.8 percent following further revisions by BEA, which had previously reported 1.1 percent growth.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said the surprisingly low estimate came even after many forecasters cut their estimates following the BEA’s release of its new Advance Economic Indicators report last week, which showed imports up substantially and less inventory building.

“Weak second quarter real GDP growth and the weaker year-to-year trend raise questions about whether the economy is at risk of stalling out,” Vitner said. “The unwinding of the energy boom has produced a larger drag than had been previously reported. Business fixed investment in structures has been much weaker going all the way back to the second half of 2014, which is when oil prices topped out. Investment in capital equipment is also slightly weaker than first reported. In addition, the lower inventory figures likely reflect more accurate accounting for oil and gas industry inventories during the period when prices were tumbling.”

BEA said the increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures and exports, partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment and state and local government spending. Imports, a subtraction in the calculation of GDP, decreased.

The report said acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in exports and smaller decreases in nonresidential fixed investment and in federal government spending, partly offset by a larger decrease in private inventory investment and downturns in residential fixed investment and in state and local government spending.