There are two reports on the economy worth mentioning this morning. First, data from the Bureau of Economic Analysis (BEA) showed that U.S. gross domestic product (GDP) in the second quarter of 2016 grew by more than previously estimated. Specifically, real GDP, which measures the value of the production of goods and services in America adjusted for price changes (inflation), increased at an annual rate of 1.4 percent in Q2. That is up from the first quarter’s 0.8 percent pace of expansion, a solid upward revision from last month’s 1.1 percent preliminary second quarter estimate, and slightly better than expected. The improvement was due largely to stronger household consumption that offset weakness in business investment and overseas demand. Despite the upward revision, Q2 was still the third quarter in a row with sub-2 percent GDP growth, and this soft print goes against the pattern of a big second quarter rebound seen over the past few years. Further, gross domestic income, which reflects all the money earned by consumers, businesses and government agencies, was revised to show a 0.2 percent decline rather than a gain. Altogether, the average annual GDP growth rate during the current business cycle is one of the lowest of any post-WWII expansion, showing that even seven years after the “Great Recession” ended, the economy is still struggling to achieve the breakout in growth seen in past recoveries. Economists surveyed by Bloomberg are optimistic that GDP growth will pick up to 2.8 percent in the third quarter and 2.4 percent in Q4. The latest Nowcast estimate from the New York Fed, though, is a bit more pessimistic and sees GDP growth at just 2.3 percent and 1.2 percent in Q3 and Q4, respectively.
Elsewhere, the pending home sales index from the National Association of Realtors (NAR) fell by 2.4 percent to 108.5 in August. That was much worse than the 0.5 percent gain economists had expected, the third decline in the past four months, and the lowest headline reading since January. Regionally, sales rose in the Northeast (+1.3 percent) but fell in the Midwest (-0.9 percent), the West (-5.3 percent), and the South (-3.2 percent). The significant decline in the West was not too surprising given this region's unusual sales spike in July, along with the continued tight inventory conditions which are hurting affordability across the country. NAR chief economist Lawrence Yun added that “Without more new home construction the current housing recovery could stall. Housing inventory has declined year-over-year for 15 straight months; properties in August typically sold 11 days quicker than in August 2015.”
Sources: Econoday, Twitter, Bloomberg, ZH, BEA, NAR, FRBSLPost author: Charles Couch