US economy grows less than expected in Q2
(A barn painted with a US flag in Homestead, Iowa, seen in 2015.REUTERS/Jim Young)
The US economy grew by 1.2% in the second quarter, weaker than expected, according to an advance estimate released Friday.
Economists had forecast an improvement in growth from the first quarter to an annualized pace of 2.5%, according to Bloomberg.
The big drag on growth was weak business spending, and its impact was bigger than recorded in the first quarter. The decline in company inventories shaved 1.2 percentage points from second-quarter gross domestic product.
Private fixed investment fell at a 3.2% pace, the steepest drop in seven years, Bloomberg noted. Also, nonresidential fixed investment — on factories, machinery, and the like — fell for a third straight quarter, by 2.3%.
Consumer spending, however, was strong. Personal-consumption growth in the second quarter jumped to 4.2% from 1.5%, showing that spending remained an important driver of economic growth.
The Commerce Department also published its annual revisions spanning Q1 2013 through Q1 2016. First-quarter GDP growth was revised even lower to 0.8% from 1.1%. The department's updated data for the first quarter, which often reflects major changes compared with the advance estimate, showed that housing construction and exports were weaker than first reported.
"Over the past 12 months, the economy has expanded by only 1.2%," said Paul Ashworth, chief US economist at Capital Economics, in a note.
"What is really worrying is that pace has still been enough to reduce the unemployment rate further, suggesting that the economy’s potential growth rate could conceivably be close to zero," he said.
The Federal Reserve said on Wednesday that near-term risks to the US economic outlook had "diminished."
"We think they are unlikely to set monetary policy according to wild swings in inventory, but rather labor market dynamics and final demand, although the doves will cite these numbers as a reason for more ‘wait and see’," said BNP Paribas' Paul Mortimer-Lee in a note.
More From Business Insider