- 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.
