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US Second Quarter GDP at  Par

Posted by Joseph Trevisani on Jul 28, 2017 3:00:49 PM

Economic activity in the United States accelerated in the second quarter but the longer growth trend remains stubbornly near 2 percent where it has been for almost a decade.

Gross domestic product expanded at a 2.6 percent annual rate from April to June, according to Commerce Department figures on Friday. This was slightly less than the 2.7 percent median estimate, though more than double the revised 1.2 percent pace in the first quarter. That quarter had been at  1.4 percent after the second of three revisions. The half year just ended clocked in at 1.9 percent annually just shy of the 2.1 percent average of the last eight years and 2.2 percent  in 2016.

The second quarter rebound was led by  a 2.8 percent gain in consumer  spending which followed a 1.9 percent rise in the first quarter.

Disposable income for American households, that is after taxes and transfer payments and adjusted for inflation, rose 3.2 percent, after a 2.8 percent gain in the first three months of the year. This was the best six months for income since the first half of 2015. Consumption was also supported by climbing equity and home prices and a steady job creation, albeit without appreciable wage gains.  Business equipment spending jumped 8.2 percent, the biggest in almost two years. 

The saving saving rate for U.S. households slipped to 3.8 percent from 3.9 percent. 

Exports added 0.18 percent to GDP, close to their impact  first quarter. Inventories were  flat, subtracting 0.02 percent from growth, an improvement on the -1.46 percent effect in the prior three months.  Final sales, that is GDP without trade and inventories, essentially domestic consumption,  rose 2.4 percent the same as in the first quarter. 

Inflation reflected the lack of dynamism in the economy.  The Federal Reserve's preferred measure, the core personal consumption expenditure price index, PCE for short, dropped substantially to 0.9 percent annually in the second quarter from 1.8 percent in the first, for the weakest rate since 2010. 

Nonetheless, the U.S. central bank is expected to begin shrinking its historically massive $4.5 billion balance sheet in the next two quarters and to continue its gradual rate increases, with  one more 0.25 percent anticipated by the end of the year

The GDP report will be revised twice, at one month intervals in August and in September. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: ZeroHedge, Bureau of Economic Analysis

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