Economy in U.S. Grew at 1.1% Rate

inflationPhotographer: Craig Warga

The world’s largest economy grew less than previously reported in the second quarter, a sign consumer spending will need to continue to drive expansion, Commerce Department figures showed Friday in Washington.

Key Points

  • Gross domestic product, the value of all goods and services produced, rose at a 1.1 percent annualized rate, revised down from an initial estimate of 1.2 percent (median forecast was 1.1 percent)
  • Household spending grew at a 4.4 percent pace, revised from an initial estimate of 4.2 percent (forecast was 4.2 percent) and added 2.94 percentage points to GDP growth
  • Biggest downward revisions compared with initial estimate were in state and local government spending, inventories, net exports
  • Gross domestic income climbed 0.2 percent
  • Corporate pretax earnings fell 4.9 percent from a year earlier; they were down 1.2 percent from the prior quarter

Big Picture

The economy’s failure to develop a sustained pickup has helped keep Federal Reserve policy makers from pulling the trigger on an interest-rate increase so far this year. Economists project a third-quarter rebound driven by household purchases and more stockpiling, and the report showed wages and salaries were revised sharply higher, indicating consumers have the wherewithal to continue spending. A weakening picture for profits casts a shadow over the outlook for already-sluggish business investment and possibly for hiring, which has been robust so far this year.

Economist Takeaways

“It’s a story about the consumer carrying the economy right now,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast GDP growth. “That’s definitely something we like to see. We’ll get better growth in the second half.”

 The Details
  • Inventories shrank by an annualized $12.4 billion in the second quarter, subtracting 1.26 percentage points from GDP, the most in more than two years
  • Business investment in equipment fell 3.7 percent, more than previous estimate of 3.5 percent
  • Trade added less to GDP than originally estimated, as imports rose instead of falling in the initial report
  • Residential investment fell 7.7 percent, more than prior estimate of 6.1 percent
  • Inflation excluding food and energy was 1.8 percent at an annual rate, slightly faster than initial figure of 1.7 percent
  • Wages and salaries for the second quarter climbed by $92.6 billion, up $44.2 billion from the previous estimate; Commerce cited analysis of historical wage revisions that incorporate Labor Department’s quarterly census of employment and wages
  • State and local outlays decreased at a 2.2 percent annualized rate and subtracted 0.25 percentage point from growth, the most since the last three months of 2012

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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