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US growth slumps in Q2
July 31, 2016, 10:41 am

US economic growth has been slow and uneven, Fed chief Janet Yellen recently warned [Xinhua]

US economic growth has been slow and uneven, Fed chief Janet Yellen recently warned [Xinhua]

US stocks are likely to feel the pinch from the latest less-than-encouraging data when markets open on Monday as investors are left scratching their heads wondering whether the economy is doing worse than previously thought.

Analysts and markets were frustrated Friday night when the US Commerce Department released ‘advance estimate’ figures defying nearly universal forecasts that the economy would bounce back in the second quarter.

From April to June, the US economy grew at a seasonally adjusted rate of 1.2 per cent, far less than the 2.5 per cent anticipated by most analysts.

To exacerbate the weak momentum in GDP growth, the Commerce Department revised downward figures for the first quarter, from 1.1 per cent to 0.8 per cent.

To put things into perspective, the US economy has for the past four quarters grown at less than two per cent. In 2015, it averaged a two per cent growth rate; in the first two quarters of 2016, it averaged a one per cent growth rate.

The latest data has perplexed many analysts who have pointed to stronger consumer confidence and spending in the past two quarters.

They also pointed to a persistently strong real estate market.

“The increase in real GDP in the second quarter reflected positive contributions from personal
consumption expenditures (PCE) and exports that were partly offset by negative contributions from
private inventory investment, nonresidential fixed investment, residential fixed investment, and state
and local government spending,” the Commerce Department’s Bureau of Economic Analysis (BEA) said in its report Friday

“Imports, which are a subtraction in the calculation of GDP, decreased,” however.

The culprit lies in the waning appeal of investments given an uneven economy; there has been a decrease in the money being spent by companies on infrastructure, updating equipment and expanding inventory.

The latest report diminishes from the Federal Reserve’s somewhat more optimistic assessment last week.

“Near term risks to the economic outlook have diminished,” the Federal Open Market Committee (FOMC) said on Thursday following its two-day meeting.

It added that economic spending has expanded at a moderate pace. But the FOMC expressed hopes that there would be greater activity in business investment.

And that’s where the biggest drawback has been.

Analysts had read into the FOMC statements that a rate hike was more likely in September. With the latest GDP (and revised) data, it could be that the Fed will postpone any definitive decision on rates until at least October.

The BRICS Post with inputs from Agencies