U.S. gross domestic product (GDP) growth remained healthy in the second quarter of 2019, according to new data from the Bureau of Economic Analysis. 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 2.1 percent in Q2. That is down from the first quarter’s brisk 3.1 percent pace of expansion but still better than anticipated and the 9th consecutive quarter of growth above 2 percent. As usual it is worth mentioning that this is only the first estimate of Q2 GDP, meaning that large revisions are possible over the next few months.
Many analysts expected that the substantial buildup in inventories due to trade war concerns that provided a boost to GDP in earlier quarters would start to act as a drag in Q2. While inventories indeed detracted from growth last quarter, the decline was smaller than projected. U.S. private fixed non-residential investment also decelerated in Q2, but this is not surprising following the above-trend gains in capital expenditures that followed the passage of the Tax Cuts and Jobs Act of 2017. More importantly, such negatives were easily offset by the 4.3 percent surge in personal consumption, i.e. consumer spending. That was the largest gain since 2014 and highlights how a tight labor market and accelerating wage growth have provided Americans with the confidence needed to remain the main driver of the longest economic expansion on record. Although today’s GDP report is unlikely to dissuade the Federal Reserve from cutting interest rates next week, the positive data could make it harder for the central bank to justify being as dovish later this year.
Sources: Econoday, U.S. DoC, WF, Bloomberg, FRBSL
Post author: Charles Couch