Economic Commentary

Market Insight and News

The economy expanded at a real, annualized rate of 2.6% in the second quarter, while first quarter growth was revised down to 1.2% (vs. the previous estimate of 1.4%). The expansion was in line with analyst expectations from the beginning of the quarter and consistent with the post-Financial Crisis pattern of weak first quarters followed by stronger growth in the second quarter.

During the first quarter, the economy expanded at a real, annualized rate of 0.7%. Relative to consensus estimates for Q1 growth and recent real growth rates in the latter half of 2016, this can only be described as a disappointing start to the year. At the beginning of 2017, consensus estimates called for growth in Q1 of more than 2% and in the second half of 2016, actual growth averaged 2.8% (real, annualized).

During the fourth quarter, the economy expanded at a real, annualized rate of 1.9%. While this rate was lower than the consensus expected, it remained above the rate of growth in the first half of 2016 (which averaged 1.1%). Indeed, factoring in the third quarter, second-half growth came in at a real, annualized rate of 2.7%.

During the third quarter, the economy expanded at a real, annualized rate of 2.9%. While the headline GDP number is impressive, the details of the report reveal that third quarter growth was boosted by two transitory sources that are unlikely to be repeated next quarter. Without these, Q3 GDP expanded at a much more modest 1.4% annualized rate.

During the second quarter, the economy expanded at a real, annualized rate of 1.2%. This growth was largely driven by a bounce-back in consumer spending following a weak first quarter. Relative strength in consumption, as well as continued growth in the housing sector, offset weak global growth and a stagnant manufacturing sector.

Current data indicates the economy expanded at a disappointing pace of less than 1% during the first quarter of 2016, largely resulting from negative growth in durable and non-durable goods orders and reductions in consumer and government spending.  However, the labor market and housing sector remain important sources of economic strength, and combined with improving dynamics in the other sectors, we expect a modest rebound in second quarter GDP growth.

During the fourth quarter, U.S. economic growth slowed to a modest 0.7% real (inflation adjusted) annualized rate, following a 2.1% rate of growth in the third quarter.  Weak fourth quarter growth can be attributed to a higher savings rate amongst consumers, disappointing retail sales, and a struggling industrial sector. 

The U.S. economy expanded by an estimated 1.5% real annual rate in the third quarter. Domestic demand remained strong, but was insufficient to offset high inventory levels, resulting in growth that lagged the second quarter’s pace (at 3.9%) by a wide margin.

U.S. Gross Domestic Product (GDP) moved modestly higher in the second quarter, following a slight weather-induced contraction in the first quarter. We estimate that during the second quarter the economy expanded at an annualized real rate of approximately 2.5% led by growth in consumption and the housing sector.

The recent spate of weaker economic data, while not indicative of a looming recession, is consistent with the observation we made last quarter that the best GDP growth numbers are likely behind us.

After beginning the year on a rough footing with weather-impacted negative growth in the first quarter, the U.S. economy recovered nicely with estimated real growth of 2.4% for the whole of 2014.

As has been the case throughout this recovery, the economy is subject to a myriad of risks, but for the time being it remains on a “good, but not great” growth trajectory.

As would be expected, growth and the degree of recovery from the Great Recession is uneven across the various sectors, but the overall direction is positive. As such, we remain guardedly optimistic about the prospects for the U.S. economy.