We got an exciting second-quarter GDP report this week. The nation’s most important economic indicator, the real GDP, grew at an annualized rate of 4.0 percent, according to the Bureau of Economic Analysis, rebounding from a 2.1 percent decline in the first quarter. The first-quarter GDP reading was revised up from negative 2.9 percent reported in June. The second-quarter advance estimate was considerably higher than economists’ consensus expectations of 3.0 percent. But before we get too excited about this encouraging and greater-than-expected economic release, let’s take a closer look at the changes in the main components of the most comprehensive economic indicator.
The change in inventories contributed an outsized 1.7 percentage points to the change in real GDP in the second quarter, after being a 1.2 percentage-point drag in the first quarter. In fact, if we exclude the change in inventories from GDP growth, we get a more moderate 2.3 percent growth in real final sales, about the same rate of growth in final sales we have seen over the past three years. This raises a question of whether or not the second quarter growth rebound is sustainable or is it another flash-in-the-pan or false-dawn?
The pieces of the puzzle appear to be falling into place for a more sustainable improvement in U.S. economic growth in the quarters ahead. However, it may be a while before we see another 4.0 percent growth handle on U.S. GDP. We are forecasting a more sustainable 3.0 percent real GDP growth rate over the next four quarters. A quicker pace of consumer, business, and government spending is the foundation of our growth forecast over the near-term, while improving export performance should be the icing on the cake. Enjoy the brief spell on normalcy!
To find out more, check out this week’s US Outlook Report.
Tags: economy
