This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2016/07/30/business/economy/us-economy-gdp-q2.html

The article has changed 5 times. There is an RSS feed of changes available.

Version 3 Version 4
Weak Spending by Businesses Hinders 2nd-Quarter Growth Disappointing 2nd-Quarter Growth, Despite Strong Consumer Spending
(about 2 hours 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 economic recovery may be durable, but it is anything but dynamic.
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. Weighed down by anemic business spending, overstocked factories and warehouses, and a surprisingly weak housing sector, the American economy barely improved this spring after its usual winter doldrums.
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. Consumer spending advanced at a robust pace, helping to sustain a modest growth rate of 1.2 percent, but the gain was overshadowed by the poor showing in other sectors of the economy. The April-June quarter was the third consecutive period in which the economy advanced at less than a 2 percent annual rate, the weakest stretch in four years.
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. The new economic data underscores the continuing frustration 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.
“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. 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 economic health is improving.
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. “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.
The economic debate may intensify ahead of the election in November, particularly because the recovery’s gains have been less robust in battleground states like Ohio and Pennsylvania. States firmly in the Democratic or Republican column — California and Texas, for example — are generally doing much better.
On Friday, Republican leaders were quick to cite the new data on the nation’s gross domestic product to reinforce their argument that President Obama’s policies have failed to turn things around.
“After eight years of higher taxes, endless regulations and skyrocketing health care costs, the chickens are apparently coming home to roost,” said Senator Tom Cotton, Republican of Arkansas.
But there are other signs that the economy is on the mend, even for ordinary Americans who had, until recently, barely benefited from the rebound. The unemployment rate, which reached 10 percent after the recession, has fallen back to around 5 percent, while hiring and pay gains have been healthier lately. Those factors may ultimately contribute more to perceptions of vitality than abstract statistics 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 revised last year’s growth rate up slightly to 2.6 percent — the best so far since the severe downturn ended in mid-2009. But that is still below the gains the American economy recorded in the mid-2000s, let alone in 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’s 1.2 percent advance in the second quarter, the Commerce Department reported Friday, was just slightly better than the 0.8 percent pace recorded in the first quarter.
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 decrease in inventory accumulation and business investment, weaker government outlays 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. The abrupt falloff in homebuilding caught analysts off guard, but it came after a series of double-digit gains in late 2014 and 2015. And with mortgage rates very low and home prices still rising in many parts of the country, the residential real estate sector is expected to contribute to growth again in the coming quarters.
Household spending was the economy’s bright spot, rising 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. On the positive side, the overstock at stores and warehouses is starting to dissipate. That could help growth in the second half 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. After a long period in which trade has weighed on the economy, the balance between exports and imports may finally be improving. The net trade picture actually lifted growth by nearly a quarter of a percentage point last quarter, the first significant improvement from trade since mid-2014.
But “the other 30 percent of the economy like trade, capital spending and inventories are struggling,” he said, “especially in the manufacturing sector.” In addition, Mr. Behravesh said, wages are finally beginning to inch higher for many workers after years of stagnation. Gas prices also remain low.
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 weaker demand from customers in Asia and Europe, many factories and mills in the nation’s midsection have been hit by the drop in energy prices as new drilling for oil and natural gas has collapsed.
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. Regional disparities have contributed to 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. Domestically focused service industries like software, health care and financial services are 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 also encouraging more affluent consumers to open their wallets.
Low gas prices, however, have delivered a windfall for shoppers everywhere, whether they are returning to the mall or spending online. This week, the Federal Reserve noted improving economic conditions in the United States after a two-day meeting of policy makers, even as the central bank held off on increasing in interest rates.
Domestically focused service industries like software, health care and financial services are also doing well, lifting incomes among white-collar workers. A top Fed official downplayed the latest report.
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. John Williams, president of the San Francisco Fed, said the second-quarter gross domestic product reading was weak largely because of inventories and government spending, noting that underlying data that discount for swings in stock building “look good.”
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. Speaking to reporters after a speech in Cambridge, Mass., Mr. Williams, an influential centrist at the central bank, noted the two key employment and inflation reports before the next meeting in mid-September. “It makes sense, assuming the data continue to support that, to raise rates again this year,” he said.
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. Michael Gapen, chief United States economist at Barclays, said the disappointing gross domestic product report makes a move by the Fed in September a bit less likely, but it could still be on track if the government issues strong jobs reports for July and August. July’s data will be released by the Labor Department next Friday.
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.
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.”