The American economy was a bit healthier in the second quarter than economists had predicted but the improvement was fueled by expanding inventories which could inhibit future growth if they remain unsold.
Gross domestic product in the U.S. increased at a 1.7 percent annual pace in the second quarter, much faster than the median 1.0 percent forecast in the Bloomberg survey. But the economy was also much weaker in the first three months of the year than originally stated as the Commerce Department revised second quarter annual GDP down to 1.1 percent from 1.8 percent.
Consumer spending which comprises about 70 percent of GDP climbed 1.8 percent in the second quarter from the prior year, slightly ahead of predictions at 1.6 percent. Consumption in the first quarter was adjusted down to 2.3 percent from 2.6 percent.
Consumers have become more frugal as their incomes have stagnated. Over the past 15 years consumption has increased an average of 2.6 percent a year while personal income has averaged a gain of 4.3 percent a year.
In the decade from 1998 to 2007 consumption grew 3.5 percent a year and the gain in personal income averaged 5.5 percent. But since the recession ended in June 2009 the average spending increase has been 2.0 percent and income gains have been limited to 2.7 percent.
Chief Market Strategist