2nd Quarter GDP Slows
U.S. gross domestic product slowed at an annual rate of 2.1 percent in the second quarter, according to the “advance” estimate released Friday by the Bureau of Economic Analysis.
In the first quarter, real GDP increased by 3.1 percent.
BEA said the increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures, federal government spending and state and local government spending, partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment. Imports, a subtraction in the calculation of GDP, increased.
The report said deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.
Joel Kan, Associate Vice President of Economic and Industry Forecasting with the Mortgage Bankers Association, noted the second quarter deceleration was above historical averages, and higher than the MBA forecast and most consensus expectations.
“The second quarter results point to resilience from the household sector, despite signs of slowing growth in other parts of the economy and elsewhere in the world, and continues to be supported by job growth and low unemployment,” Kan said. “We expect that this will also support moderate growth in the home purchase market in the coming months, especially for first-time homebuyers and younger homebuyers entering prime home ownership ages.”
Jay Bryson, Acting Chief Economist with Wells Fargo Securities, Charlotte, N.C., said net exports and inventories weighed on the overall rate of real GDP growth in Q2. “Although the outturn was a bit stronger than expectations, the FOMC likely will still cut rates 25 basis points on July 31,” he said.
Bryson noted while personal consumption expenditure data show the American consumer “is alive and well,” there were some notable areas of weakness. For example, he said, GDP data show that the nation’s housing market remains understated, as real residential construction spending edged down 1.5%, the sixth consecutive quarter in which this spending component has declined.
“That said, inflation continues to run below the Fed’s target of 2%, and the FOMC seems to be concerned about some of the uncertainties related to trade and other geopolitical factors that cloud the economic outlook,” Bryson said. “Many members of the FOMC seem to be taking the view that it should probably take out a few ‘insurance’ rate cuts at this time, especially in an environment in which high inflation simply is not a problem.”
BEA said the advance estimate is based on incomplete source data and is subject to further revision The second (revised) estimate for the second quarter, based on more complete data, will be released Aug. 29.
