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GDP: Slight Growth in Q2

July 29, 2016
Bottom Line: Economic growth accelerated slightly in this first estimate of 2016 Q2 GDP, lower than market expectations. The prior quarter estimate was revised lower by 0.3% to 0.8%. The economy grew less than forecast due to a sharp drop in inventory investment despite the largest increase in consumer spending since Q4, 2014. The economy has been growing for the past 28 quarters at an average annualized growth rate of 2.2%, suggesting economic growth remains modest with real final sales growing at a 2.2% annualized rate over the last 4 quarters. Final domestic demand is growing at a 2.1% annualized rate over the last 28 quarters.

Gross Domestic Product ROSE by 1.2% in Q2, lower than market expectations for an increase of 2.5%. During the 7 years of economic expansion, the economy grew at an average annual rate of 2.2% after declining at a 2.9% rate during the recession. Economic activity is now 1.5% ABOVE its year ago level and 10.5% ABOVE its pre-recession 2007 Q4 cyclical peak.

Inventory Investment FELL by $48.8 billion, subtracting 1.16 percentage points from overall economic activity. Consequently, Real Final Sales ROSE by 2.4% and is now 2.2% ABOVE its year ago level.

Additionally, Imports FELL by 0.4% and Exports ROSE by 1.4% so Net Exports ROSE by $10.0 billion. This implies that Real Final Domestic Demand ROSE by 2.1% and is now 2.3% ABOVE its year ago level.

Consumer Spending ROSE by 4.2%, contributing 2.83 percentage points to economic growth. Business Investment FELL by 2.3%, subtracting 0.28 percentage points to GDP. Intellectual property products increased by 3.5% while non-residential structures declined by 7.9%. Residential Investment FELL by 6.1%, subtracting 0.24 percentage points to economic growth. Finally, Government Purchases FELL by 0.9%, subtracting 0.16 percentage points to GDP. This was its 1st negative contribution in the last 5 quarters.

The GDP Price Index ROSE by 2.3%, compared with market expectations of 1.9%. This is also 1.2% ABOVE its year ago level.
Article by contingentmacro