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| Weak Spending by Businesses Hinders 2nd-Quarter Growth | Weak Spending by Businesses Hinders 2nd-Quarter Growth |
| (about 1 hour later) | |
| The American economy barely improved this spring from its winter doldrums, weighed down by anemic business spending, overstocked shelves at factories and warehouses, and a surprisingly weak housing sector. | The American economy barely improved this spring from its winter doldrums, weighed down by anemic business spending, overstocked shelves at factories and warehouses, and a surprisingly weak housing sector. |
| Consumer spending advanced at a healthy pace, helping to sustain modest growth, but it was swamped by the poor showing in other sectors of the economy. | Consumer spending advanced at a healthy pace, helping to sustain modest growth, but it was swamped by the poor showing in other sectors of the economy. |
| The April-June quarter was the third consecutive period in which the economy has grown by less than 2 percent, the weakest stretch in four years. It underscores the continuing frustration many Americans have about the current growth cycle, which has now gone on for seven years — longer than most economic upswings — but which has repeatedly failed to break out into a higher orbit. | |
| And with the political conventions now over, and the brawl between Hillary Clinton and Donald J. Trump for the White House in full swing, Friday’s data at least partly undercuts the Democrats’ argument that the nation’s economy is in sound condition. | And with the political conventions now over, and the brawl between Hillary Clinton and Donald J. Trump for the White House in full swing, Friday’s data at least partly undercuts the Democrats’ argument that the nation’s economy is in sound condition. |
| “This definitely feeds into an existing Republican narrative that the economy is growing too slowly, and dials it up a notch,” said Jared Bernstein, a liberal economist who served in the Obama administration. | “This definitely feeds into an existing Republican narrative that the economy is growing too slowly, and dials it up a notch,” said Jared Bernstein, a liberal economist who served in the Obama administration. |
| But there are other signs that the economy is on the mend, even for ordinary Americans who have barely benefited from the recovery. The unemployment rate has fallen back to around 5 percent, while hiring and pay gains have been healthier lately. Those factors ultimately contribute more to perceptions of vitality than the abstract data on the nation’s economic output. | But there are other signs that the economy is on the mend, even for ordinary Americans who have barely benefited from the recovery. The unemployment rate has fallen back to around 5 percent, while hiring and pay gains have been healthier lately. Those factors ultimately contribute more to perceptions of vitality than the abstract data on the nation’s economic output. |
| “What really matters to people is jobs and income, and that’s most recently been a positive story,” added Mr. Bernstein, who is now a senior fellow at the Center on Budget and Policy Priorities. | “What really matters to people is jobs and income, and that’s most recently been a positive story,” added Mr. Bernstein, who is now a senior fellow at the Center on Budget and Policy Priorities. |
| Based on more complete information about recent years, the government also revised last year’s growth rate up slightly to 2.6 percent — the best so far since the severe recession ended in 2009. But that’s still well below the gains the American economy recorded in the mid-2000s, let alone the booming late 1990s. | Based on more complete information about recent years, the government also revised last year’s growth rate up slightly to 2.6 percent — the best so far since the severe recession ended in 2009. But that’s still well below the gains the American economy recorded in the mid-2000s, let alone the booming late 1990s. |
| Over all, the economy expanded at an annualized rate of 1.2 percent in the second quarter, the Commerce Department reported Friday morning, just slightly better than the 0.8 percent pace recorded in the first quarter. The major drags were plunging business spending and excess inventories. | Over all, the economy expanded at an annualized rate of 1.2 percent in the second quarter, the Commerce Department reported Friday morning, just slightly better than the 0.8 percent pace recorded in the first quarter. The major drags were plunging business spending and excess inventories. |
| Besides the drop in corporate investment, weaker government spending also held back growth, reinforcing a trend that has hobbled the recovery in recent years. | Besides the drop in corporate investment, weaker government spending also held back growth, reinforcing a trend that has hobbled the recovery in recent years. |
| Consumer behavior was resilient in the spring: Household spending rose at an annualized rate of 4.2 percent. | Consumer behavior was resilient in the spring: Household spending rose at an annualized rate of 4.2 percent. |
| “The consumer is doing all the heavy lifting,” said Nariman Behravesh, chief economist at IHS Markit. “Aside from technology and software, business spending was bad and housing was also surprisingly weak, which is payback for gains in recent quarters.” | “The consumer is doing all the heavy lifting,” said Nariman Behravesh, chief economist at IHS Markit. “Aside from technology and software, business spending was bad and housing was also surprisingly weak, which is payback for gains in recent quarters.” |
| One potential bright spot is that the big overhang from inventories — groaning shelves at warehouses that need to be worked off — is starting to dissipate and is likely to continue for the rest of the year, Mr. Behravesh said. | One potential bright spot is that the big overhang from inventories — groaning shelves at warehouses that need to be worked off — is starting to dissipate and is likely to continue for the rest of the year, Mr. Behravesh said. |
| In addition, Mr. Behravesh said, wages are finally beginning to inch higher for many workers after years of stagnation. Gas prices also remain low, despite a recent uptick. | In addition, Mr. Behravesh said, wages are finally beginning to inch higher for many workers after years of stagnation. Gas prices also remain low, despite a recent uptick. |
| But “the other 30 percent of the economy like trade, capital spending and inventories are struggling,” he said, “especially in the manufacturing sector.” | But “the other 30 percent of the economy like trade, capital spending and inventories are struggling,” he said, “especially in the manufacturing sector.” |
| While grappling with weak demand from overseas customers in Asia and Europe, many factories and mills have also been hit by the plunge in energy prices. | While grappling with weak demand from overseas customers in Asia and Europe, many factories and mills have also been hit by the plunge in energy prices. |
| Blast furnaces and steel plants in the rust belt of the Midwest might be thousands of miles from oil fields in Texas and North Dakota, but they have been idled as demand for items like pipes and drill bits has collapsed. That has caused pain in many blue-collar communities in states like Illinois, Indiana, Pennsylvania and Ohio. | Blast furnaces and steel plants in the rust belt of the Midwest might be thousands of miles from oil fields in Texas and North Dakota, but they have been idled as demand for items like pipes and drill bits has collapsed. That has caused pain in many blue-collar communities in states like Illinois, Indiana, Pennsylvania and Ohio. |
| It has also contributed to vastly differing perceptions of the economy. Workers in the West are finding themselves priced out of neighborhoods in booming San Francisco and Seattle, while families in less prosperous parts of the country say they feel as if the recession never really ended. | It has also contributed to vastly differing perceptions of the economy. Workers in the West are finding themselves priced out of neighborhoods in booming San Francisco and Seattle, while families in less prosperous parts of the country say they feel as if the recession never really ended. |
| Low gas prices, however, have delivered a windfall for shoppers everywhere, whether they are returning to the mall or spending online. | Low gas prices, however, have delivered a windfall for shoppers everywhere, whether they are returning to the mall or spending online. |
| Domestically focused service industries like software, health care and financial services are also doing well, lifting incomes among white-collar workers. | Domestically focused service industries like software, health care and financial services are also doing well, lifting incomes among white-collar workers. |
| A strong real estate market in many parts of the country and the run-up on Wall Street are providing additional encouragement to more affluent consumers to open their wallets. | A strong real estate market in many parts of the country and the run-up on Wall Street are providing additional encouragement to more affluent consumers to open their wallets. |
| For the remainder of 2016, Mr. Behravesh of IHS Markit is looking for an annualized growth rate of about 2.5 percent. While the strong household spending evident in the second quarter should moderate a bit, he expects the drag from tepid businesses spending and the overhang from ample inventories to also ease. | For the remainder of 2016, Mr. Behravesh of IHS Markit is looking for an annualized growth rate of about 2.5 percent. While the strong household spending evident in the second quarter should moderate a bit, he expects the drag from tepid businesses spending and the overhang from ample inventories to also ease. |
| This week, the Federal Reserve acknowledged improving economic conditions in the United States after a two-day meeting of policy makers, although the central bank held off any increase in interest rates. | This week, the Federal Reserve acknowledged improving economic conditions in the United States after a two-day meeting of policy makers, although the central bank held off any increase in interest rates. |
| Despite resilient consumers, the Fed is much more focused on hiring and wages, said Michael Gapen, chief United States economist at Barclays. | Despite resilient consumers, the Fed is much more focused on hiring and wages, said Michael Gapen, chief United States economist at Barclays. |
| If employers continue to add workers at a healthy pace in July and August, he said, the Fed could move to raise rates as soon as September. “It’s all about the labor market,” he said. | If employers continue to add workers at a healthy pace in July and August, he said, the Fed could move to raise rates as soon as September. “It’s all about the labor market,” he said. |
| The disappointing report for the second quarter makes a Fed move in September a bit less likely, Mr. Gapen said, and it will heighten the focus on the jobs report for July, which will be released next Friday. | The disappointing report for the second quarter makes a Fed move in September a bit less likely, Mr. Gapen said, and it will heighten the focus on the jobs report for July, which will be released next Friday. |
| “The domestic side of the economy looks O.K. Not stellar, not fantastic, but enough to keep us on a modest growth path,” Mr. Gapen said. “And if it’s all about personal consumption, then the labor market is your best forward-looking indicator.” | “The domestic side of the economy looks O.K. Not stellar, not fantastic, but enough to keep us on a modest growth path,” Mr. Gapen said. “And if it’s all about personal consumption, then the labor market is your best forward-looking indicator.” |