United States: Q2 GDP growth is revised down slightly but does little to alter the snapshot of economic activity
August 26, 2016
In the second quarter, the U.S. economy grew at a slightly slower rate than initially estimated, highlighting the weak performance in the first half of 2016. Revised data showed that GDP increased at a seasonally adjusted annual rate (SAAR) of 1.1%, which was down slightly from last month’s initial estimate of a 1.2% increase. Despite the revision, GDP growth managed to accelerate from the 0.8% expansion registered in Q1.
Analysts suggest that the revision does little to alter the snapshot of economic activity in the second quarter, as private consumption increased at a robust pace and business investment and exports remained weak. The mild revision reflected an inventory drawdown, which was already weak in the initial estimate. Private consumption was resilient in Q2 as U.S. households remain confident that economic growth, albeit modest, will continue to add jobs at a solid pace. Therefore, private consumption increased 4.4% SAAR in Q2, which came in above the 1.6% rise observed in Q1. Other components of domestic demand, however, showed a less positive performance. Government consumption decreased 1.5% over the previous quarter (Q1: +1.6% SAAR) and gross fixed investment contracted further in Q2, which reflected a strong decrease in residential investment in the second quarter (Q2: -7.7% SAAR; Q1: +7.8% SAAR) and yet another contraction in non-residential investment—the third consecutive quarterly decline. Weak investment mainly reflects a pullback by businesses—particularly energy firms—on purchases of new equipment in the wake of low oil prices, as well as due to signs of a stagnation of profits and uncertainty in an electoral year.
Regarding foreign trade of goods and services, exports rebounded and expanded 1.2% SAAR in Q2, which contrasted the 0.7% decrease observed in Q1. Imports also rebounded in Q2 and increased 0.3%, which contrasted the 0.6% contraction in Q1. Consequently, net exports contributed a mild 0.1 percentage points to growth in the second quarter, which was better than the zero contribution in Q1.
The weakness in the second quarter highlighted what was a disappointing first half of 2016 for the U.S. economy. Nonetheless, many analysts believe that the economy will pick up momentum in the second half of the year, supported by strong growth in private consumption, an improvement in investment and a rebuilding of inventories.
Author: Ricardo Aceves, Senior Economist