Economists React to Second-Quarter Growth: ‘Very Weak’

Consumers did their part in the second quarter, but business investment fell, bringing overall quarterly growth to a weak 1.2%, well below the 2.6% figure forecast by economists. And the first quarter’s growth was revised downward, to a 0.8% pace. Here’s how economists and analysts reacted to Friday’s worse-than-expected GDP report from the Commerce Department.

“The good news is that consumption increased by a very strong 4.2% annualized in the second quarter and net exports added 0.2% points to GDP growth, as exports increased by 1.4%, while imports contracted by 0.4%. Otherwise, it was all bad news….There are some reasons for optimism in the second half of the year. The survey evidence has improved markedly in recent months. The drag from shrinking mining-related investment will fade, residential investment will recover and net exports should benefit from the fading of the 2014-15 dollar surge. Inventories have been a significant drag on GDP growth for five consecutive quarters now, which cannot continue indefinitely. But consumption growth is sure to slow too.” —Paul Ashworth, Capital Economics

“Growth is up only 1.2% year over year. This report was very weak, and this report supports our forecast of a coming U.S. recession. Industrial production data convey that we are in a recession right now. We still expect a slowing of U.S. growth in the second half of the year as lower oil prices affect oil and gas credit and financial players. At the same time, we also expect light-vehicle sales are likely to slow, due to oversized used lease fleets crowding out new vehicle sales, as well as a reduction in new issuance of subprime auto loans. We still believe a U.S. recession is likely to begin in late 2016, and today’s GDP report reaffirms our expectations. We also expect no Fed rate hikes this year.” —Jason Schenker, Prestige Economics

“The overall picture is not nearly as bad as it looks. The biggest surprise for both the second quarter and the revisions to recent quarters is that firms got their inventories much leaner than previously thought….The inventory correction should have been close to done by mid-year, and a snapback to a ‘normal’ rate of inventory investment in the second half of the year would add about 1.6 percentage points cumulatively to growth in the second half of the year….Business investment was also soft, most certainly not a quirk….One interesting development in the second quarter that contributed to the shortfall in real GDP was a pickup in the price index.” —Stephen Stanley, Amherst Pierpont Securities

“For [Fed policy makers], 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.’ To us, after stripping out inventories, real final sales increased by 2.4% quarter-over-quarter after averaging a 1.7% quarter-over-quarter clip in the previous three quarters. On revised numbers, 2015 was the best year for growth since the recession.” —Paul Mortimer-Lee and Bricklin Dwyer, BNP Paribas 
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