Leading into today’s GDP release, better-than-expected results on the trade gap had boosted expectations for growth during the second quarter. The result did not disappoint, as growth topped forecasts.
The second estimate for second quarter GDP suggests the economy grew at an annualized rate of 2.5%, a sizable upward revision from the advance estimate of 1.7%. Nonetheless, increases in inventories in the past two quarters have also been meaningful and consumer spending growth slipped, providing reason for enthusiasm to remain in check.
Consumer spending was fractionally better than previously reported, remaining in a lackluster sub-2.0% growth pace. The slowdown in spending growth from the prior quarter suggests that consumers may have started to feel the pinch of weak income gains and bigger tax bills earlier this year.
The housing market held the line during the second quarter, growing at a double-digit pace. Although it’s a much smaller component of GDP than before the crash, a sustained recovery on the housing front remains an important component to the growth of the economy.
Private domestic investment was the beneficiary of a nearly 1% upward revision to 9.9%. Of particular note was the 16.1% increase in commercial real estate, partially reversing the precipitous drop in the second quarter. Corporate America is still very hesitant to go “all in” on the expansion though, as momentum in business investment remains elusive.
The positive news is that the economy is still advancing, although the fact that growth has not surpassed 3% since the first quarter of 2012 remains troubling. Confidence has risen, but both consumers and the corporate sector remain justifiably skeptical about whether or not the U.S. economy is on the verge of a more robust expansion. Recent data suggests that the economy is still largely holding its own, potentially giving the Fed what it needed to move forward with its plan to begin to taper bond purchases.
As investors weigh the near-term risk posed by potential military intervention in Syria and the uncertainty surrounding the timing and magnitude of the Fed’s next move, the potential for volatility to re-emerge in the capital markets also appears to be on the rise. Neither appears likely to derail the economy, however, and any downward move in asset prices could present an opportunity for investors.
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