A Second Look at GDP Growth in the Second Quarter

The Bureau of Economic Analysis (BEA) released the second estimate of real GDP growth for the second quarter of 2016 based on more complete source data than was available for the advance estimate. Real GDP grew at a 1.1% seasonally adjusted annual rate, little changed from the 1.2% earlier estimate.

The revisions were mixed, consumer spending was slightly stronger, investment was unchanged, government spending was weaker, exports were slightly weaker, and imports, a subtraction from growth, were stronger.

The overall narrative of recent economic performance is changed little with these revisions. Consumer spending has been the backbone of the modest growth we’ve seen. Investment had been a semi-regular contributor to growth until as recently as early 2015, but has deteriorated to a consistent drag as the energy sector declined with the price of oil. A strong US dollar has impeded growth as net exports have subtracted more than they’ve added to growth in recent years, and government spending has contributed little.

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The energy sector, captured in the structures component of fixed nonresidential investment, has weakened growth since the second half of 2014, but recent declines in equipment spending have pushed total fixed investment negative and contributed to overall growth closer to 1% annually than 2% or better since the end of 2015.

Residential fixed investment has been a steady contributor to overall growth but slowed in the second quarter as single family housing starts slowed from an accelerated pace in the first quarter. The ongoing housing recovery is likely to return residential fixed investment to a positive contributor to growth in the third quarter.

Growth going forward will depend on consumer spending and investment outside the energy sector, particularly a rebound in equipment spending. International trade and government spending have not been sources of strength.

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