Solid consumer, business spending accelerates US GDP to 2.6% in Q2

Gross domestic product, a broad measure of goods and services produced  in the U.S., rose at a 2.6 percent annual rate in the April to June  period, albeit figures being adjusted for inflation and seasonality, the Commerce Department said Friday, reports Wall Street Journal (WSJ).

Economists surveyed by The Wall Street Journal had expected an increase  of 2.7 percent, but it is unclear if stronger growth is a sign of momentum or a repeat of weak winter followed by a stronger spring and  summer.

The second-quarter advance is particularly a welcome rebound after a lackluster start to the year, when GDP grew at only 1.2 percent pace. It is less clear if stronger growth is a sign of momentum or simply  repeating a familiar pattern of weak winters followed by a stronger  spring and summer.

The U.S. emerged from the last recession in mid-2009. Eight years later, the country has entered the third-longest but also the slowest expansion since World War II, with GDP growth averaging a little over 2 percent.

By comparison, growth averaged 3.6 percent during a 10-year span in the 1990s and 4.9 percent during a nearly nine-year stretch in the 1960s, the only two expansions with longer durations.

President Donald Trump, who took office in late January, has pledged to return the nation to the above-3 percent growth.

Details within Friday’s report were generally positive with both consumers and businesses helping to propel growth in the second quarter.

Household outlays rose at a 2.8% pace, an improvement from the first quarter’s 1.9%. Consumers stepped up spending on both goods and services, possibly reflecting a broadly positive outlook since the election. The Conference Board’s index of consumer confidence in July rose to the second-highest level in 16 years.

Businesses also have been upbeat. A measure of corporate spending on projects, nonresidential fixed investment, climbed at a 5.2 percent pace. While that was down from the first quarter’s 7.2 percent, it is still one of the best readings since 2014.

In a sign of an improving global economy, U.S. exports expanded faster than imports. That made trade a small—0.18 percentage point—contributor to overall growth.

Government outlays rose, led by a surge in federal military spending. State and local governments cut back.

Spending on home building and improvements was the biggest drag in the second quarter. Residential fixed investment dropped at a 6.8 percent pace, the sharpest decline since 2010.

Businesses, meanwhile, didn’t restock their shelves and warehouses in the second quarter. A small decline in inventories shaved 0.02 percentage point off the headline GDP number.

Inflation eased. The price index for personal-consumption expenditures–the Fed’s preferred inflation gauge—rose at a rate of 0.3 percent in the second quarter. Core prices, which exclude volatile food and energy costs, increased 0.9 percent.