Today’s second estimate of second quarter GDP growth provided a slightly higher revision to 1.7% from the original estimate of 1.5%. The report effectively reaffirmed that the economy cooled modestly in the second quarter, something that shouldn’t come as a surprise to anyone given the ample evidence of that outcome.
Despite the upward revision, the reported GDP pace is still down from the 2.0% growth rate of the first quarter, and year over year growth remains well below the average of past recoveries.
Personal consumption slipped during the quarter, dropping from 2.4% to 1.7%. Retail sales stumbled through spring as consumers gripped their wallets a little tighter. That reversed course a bit in July, but the trend still suggests that consumers are feeling the pinch of limited income growth and a lackluster jobs market.
Demand for higher ticket items cooled during the quarter. Spending on personal residences that grew at an 8.9% annual rate is still positive, but diminished from the first quarter growth pace. Meanwhile, automobile production turned modestly negative, putting a bit of a drag on overall growth.
Dimming confidence, coupled with recently sluggish consumer spending, suggest that the pace of expansion is unlikely to surge in the near term, and that outlook is not helped by the synchronized slowdown in the global economy. Export demand is also likely to moderate rather than providing a boost to domestic producers. Sources of increasing demand are harder to find than areas of weakness.
Ultimately, whether the economy continues to slow in the quarters ahead or regains some momentum remains to be seen. The bottom line is that – at best – the economy remains stuck in second gear. There’s no question though that as we look toward the end of the year and the risk presented by federal spending cuts and tax increases, the economy remains in a vulnerable window.
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