The economy grew 2.1% in the second quarter, the Bureau of Economic Analysis reports. Although that marks a hefty slowdown from Q1’s 3.1% increase, the Q2 advance is a bit stronger than expected.
A surge in consumer spending is the main reason that GDP growth beat expectations. Personal consumption expenditures surged 4.3%, sharply above Q1’s 1.1% gain. The ramp-up in spending reflects the strongest quarterly gain since the final quarter of 2017.
Elsewhere, headwinds were conspicuous. “We have pockets of weakness in manufacturing, business investment, but as the consumer goes, so does the U.S. economy — the fundamentals for the consumer are very, very good,” says Ryan Sweet, an economist at Moody’s Analytics. “Unless the consumer starts to hunker it in, I think the U.S. economy is going to get through this little soft patch without it turning into something worse.”
Today’s update reaffirms The Capital Spectator’s view that recession risk remains low (see last week’s business-cycle profile). But the data du jour also reminds that growth has peaked. Consider the one-year trend, which cuts through the quarterly noise. Output rose 2.3% in Q2 vs. the year-earlier quarter, the slowest pace in two years.
The task of deciding if the slowdown is likely to continue, stabilize, or re-accelerate begins with next week’s July numbers on US employment. For a clue on looking ahead, yesterday’s weekly report on jobless claims continues to paint a rosy outlook. New filings for unemployment benefits fell to 206,000 last week, close to a 50-year low. At least one leading indicator suggests the labor market will expand at a healthy pace in July. Let’s see if the official report agrees.
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