2Q2016 Gross Domestic Product: Second (Preliminary) Estimate

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In its second (“preliminary”) estimate of 2Q2016 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) revised growth of the U.S. economy to a seasonally adjusted and annualized rate (SAAR) of +1.09%, down -0.12 percentage point from the 2Q estimate released in July but +0.26% from 1Q2016. Moreover, 2Q2016’s year-over-year growth rate was +1.20%, slower than 1Q2016’s +1.57%. After missing badly in July (+2.6% expected versus +1.21% “actual”), consensus expectations were “spot on” in August.

Overall, groupings of GDP components show that personal consumption expenditures (PCE) and net exports (NetX) contributed to 2Q growth. Private domestic investment (PDI) and government consumption expenditures (GCE) detracted from it.

None of the revisions was statistically significant, with the largest line item (GCE) change only -0.11% compared to the report released in July. This report confirmed the ongoing trend of commercial weakness offset by consumer spending growth. This estimate reported continued slow contraction in commercial fixed investment (-0.42%), inventories (-1.26%) and governmental spending (-0.27%). Meanwhile consumer spending on goods (+1.52% growth) and services (+1.42%) remained strong. 

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Consumer Metrics Institute again provided a fairly terse summary:

Arguably this report was merely statistical noise. It continued to show a US economy moving forward, but with a decidedly lack-luster 1.09% growth rate.

The key items in this report:

-- All things not consumer either weakened or remained in contraction.

-- Consumer spending growth improved yet again, with most of that coming from savings.

-- All of the reported growth disappears when a third party deflator (the BLS CPI-U) is applied to the data.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.