Abacus: Second Quarter GDP Grows by 2.6%

Second quarter GDP growth more than doubled the first quarter rate this year, moving up from 1.2% in between January and April, to 2.6% in between April and June. The 2.6% number is a promising second quarter percentage growth, but still GDP growth for the first-half just short of 2% (at 1.9%). Barron’s also reports that the price index was lower this quarter, and “there was no rebound in inventories.” With no inflation pressure evident, it seems consumer spending continues to carry US growth further into our economic expansion.

Why do we care about the GDP growth numbers? Well, this quarters numbers could potentially show what kind of economic growth we expect for the remainder of the year. Barron’s goes on to say that the pickup in business investment is always a good and durable economic signal.

Source- NPR

Source- NPR

NPR’s short article about this quarter’s numbers argue that the growth has been driven by a big increase in consumer spending. This is a positive sign that “Americans are opening up their wallets, especially since consumer spending makes up about 70 percent of the economy.”

This 2.6% number is way more in line with the 3% “turbocharged” number promised by the White House from the beginning of this term. And, it also shows a lot of strength over Q1 this year.

Interestingly enough, we are in the third largest economic expansion ever, as this is the 96th straight month of economic growth since the end of the recession. This expansion follows the 120 month expansion of the 1990s, and the 106 month expansion of the 1960s (although, who knows when it will end!) However, it doesn’t exactly feel that way, Barron’s even describes US growth as “mediocre”, as opposed to robust. However, we are seeing slow but steady growth, at an annual rate of 2.1%, as opposed to the over 3% average annual growth rate we saw between the 1970s and 1990s.

Politico sees the growth as a “modestly positive headline”. And, in the end, you should have confidence in the continued slow and steady growth, even if it doesn’t totally feel like it. However, one should air on the side of caution, because this modest boost could be short lived: 1) We’ve seen continually slow increases in worker productivity, and productivity is really the backbone of economic development; 2) We should see spending start to decline as the summer comes to an end and back-to-school season comes back. We’ll have to see some more proof if we are to believe that the economy will follow through on Mr. President’s promise to grow annually at over 3%.