Market Insights: A small bounce in an even slower U.S. expansionContributor Global Markets Insights Strategy Team
A few key points on the U.S. second-quarter GDP report:
- U.S. second-quarter 2015 real GDP growth came in at 2.3%, close to our 2.0% forecast but below the consensus expectation for 2.9% growth.
- On the positive side, growth for the first quarter was revised from -0.2% to +0.6%. If the U.S. economy grows at a moderate pace of 2.5% for the rest of the year, by the fourth quarter growth will be 2.1% year-on-year, which is slightly above the Federal Reserve’s (the Fed’s) 1.9% growth forecast for this year.
- On the negative side, real inventory accumulation was still $110 billion in the second quarter. In the last decade, the average inventory accumulation has been just $27.1 billion. Getting back down to the average would represent a 2% hit to real GDP growth if the reduction were all to occur in one quarter. This could make it hard to achieve even 2.5% real growth for the balance of the year.
- Notably, real investment spending on mining and oil exploration fell by $29.4 billion, taking 0.7% out of real GDP growth. This category of investment spending has collapsed from $137.3 billion in the third quarter of last year to $89.0 billion in the second quarter of this year, although most of the pain should now be behind us.
- Revisions since 2012 show that the current U.S. recovery has been even slower than previously thought. After six full years of recovery, the U.S. economy has managed just 2.1% real GDP growth per year, compared to the 2.2% growth previously reported to the end of the first quarter. Note that the second-quarter GDP numbers do not include any change in data on U.S. employment growth. Consequently, the downward revision to recent U.S. GDP growth implies lower productivity growth in recent years and probably lower potential GDP growth going forward.
Overall, these numbers show a U.S. expansion that continues to be slow, but steady. Another low unemployment claims number provides further evidence that the U.S. labour market is continuing to tighten. On balance, this should not change expectations for Fed action in September, although that action is still highly dependent on the latest employment costs data and the upcoming jobs reports due out at the start of August and September.
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