HomeContributorsFundamental AnalysisUS: Economic Growth Accelerates in Q2

US: Economic Growth Accelerates in Q2

  • The economy grew by 2.6% (annualized) in the second quarter according to the BEA’s advance estimate – a hair below expectations for 2.7%.
  • Real personal consumption expenditures grew by 2.8%, led by a 6.3% gain in durable goods spending. Spending on non-durable goods rose 3.8%, while spending on services was up a more moderate 1.9%.
  • Non-residential fixed investment rose 5.2%, led by a 8.2% gain in equipment spending. Non-residential structures investment rose 4.9%, down from 14.8% in the first quarter as non-mining structures investment declined by 9.4% annualized – the largest decline in six quarters. Mining investment continued to support growth on increasing drilling activity, advancing by 117% (annualized), but still down from the 272% (annualized) pace in Q1.
  • Net exports contributed marginally economic growth. Exports were up 4.1%, while imports rose 2.1%.
  • Inventory investment was basically flat in the quarter (-0.3 billion from 1.2 billion in Q1).
  • Benchmark revisions reduced first quarter growth to 1.2% from 1.4% previously. Annual average growth in 2016 was revised down to 1.5% (from 1.6%), while 2014 and 2015 were both revised up (to 2.6% and 2.9% from 2.4% and 2.6% respectively). All told, the positive revisions were larger than the downward ones and the American economy is 0.2% bigger than previously estimated.

Key Implications

  • Not too shabby. As expected, economic growth accelerated from its soft opening and is once again is running at a capacity-absorbing pace.
  • Still, with the downward revision to first quarter growth and 2.6% in the second quarter, economic growth will have to accelerate further in the second half of the year in order to hit the Federal Reserve’s median forecast for 2.2% (on a Q4/Q4 basis). Fortunately, economic data has maintained momentum heading into the third quarter and there is good reason to expect this to happen.
  • All told, there is little here to raise eyebrows at the Fed. As long as economic growth continues to run above 2.0%, the focus will likely remain firmly on inflation, wage growth, and unemployment for guidance on future monetary policy.
TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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